Will this be a second home for personal use, or are you considering renting it out?

Understanding your usage will influence the type of property, location, and management needs. Ask yourself the following questions:

• Do I want the best investment value or is it more important to find something that is 100% up to your liking?
• Are you looking for turn-key or open for works/improvements?

These questions will give you answer to the type of property you should be looking for and how much time you are going to spend on it. It will also tell you if you are really looking to maximize investment value.  Or, to mainly have a place to spend precious time with friends and families... Here are the options:

1. Renting out or "Buy-to-let" (Long term or short-term)
2. Renovate for private use or as an investment?
3. Buy a turn-key property, free of stress, for personal use or investment.
4. Property development

Renting out or "Buy-to-let"

Renting out property and the type of rentals you could consider:

1. Short-term rental/holiday rental / B&B: You ALWAYS need a tourist license to rent out your property for the short term in Ibiza. No tourist license? In this case, you can rent out your property for periods of a minimum of one month.
2. Seasonal rental: THE BEST OPTION for today's buyer that is looking to break even on cost, having funds invested in property and be able to use the property for 6 months. The current demand for seasonal rental is CRAZY.
3. Long-term rentals: Think of yearly returns of about 4-6% excluding long-term value appreciation. Not a bad investment compared to other markets. Currently, there is 1 property for rent for every 142 people looking to rent. Buy-to-let is very welcome...

Here is a financial simulation of a property that is bought to rent out for the high season, and used by an owner in the low season:

Long term Whilst property development in Ibiza is in high demand, there is also a big opportunity for the long-term rental market. Typically, you won't be as heavy exposed to building hurdles, but this will also come with a lower return on investment. Lower risk, lower reward. The island is becoming more and more an all-year-round destination. As a result, Ibiza has a consistent and growing demand for rental housing from workers across various industries. Buying turn-key properties can generate that steady passive income over long periods of time. However, each investment comes with its own set of challenges. Consider the following when doing your budgets: What contract terms should you take into account?

Who pays for the utilities and other costs?

What taxes do I pay?

Contract terms:

The contract terms are different when you are acting as a private landlord vs. operating through a legal entity. Landlords with 10 or more properties even have more strict rules. When renting out as a private person, you should offer a contract of a minimum 1-month, as well as small investors up to 10 properties. As a 'professional landlord' you need to offer a minimum contract of 7 years. Note: Efforts are being made to change the housing laws that came into effect in 2023. These changes affect the co-living industry because if they need to offer 7-year contracts, it will hurt their business plan, which depends on flexibility. For long-term rentals, property owners require renters to pay a security deposit upfront. For an unfurnished apartment, you ask for a maximum one-month deposit and a two-month deposit is paid when you offer a furnished apartment. Insider tip: the long-term rental is considered to be an official rental when the deposit is paid to IBAVI. This doesn't always happen,  but it is getting more and more common. It's an extra protection for the tenants. I have experienced trouble getting my deposit back a few years ago. The landlord just made up that we have damaged goods (which weren't even there), knowing we would never start a court case for €2.000. It was a common practice. Don't forget to make clear agreements about smoking, the maximum number of occupancy, subletting, upgrades (or downgrades) and pets. It will give you more flexibility when things aren't running as expected. Include a clause about potential rent increases. If you don't add this to the contract , you will not be able to increase the rent. This choice will depend on yourself depending on the market conditions.

Who pays for the utilities and other costs?

Electricity, water, and internet are all for the tenant . Make sure that you don't get involved in the communication from the first moment. This way, you don't have to make presential appointments to change things like an e-mail address for invoices. Went through this as well ;) Community fees are to be negotiated between the landlord and tenant . We do have a contract for example where we agreed to pay 50/50. In the end it's the tenant benefiting from the community services and maintenance works are needed to keep or increase the value of your property. In Ibiza, about 75% of the rentals we see are furnished properties. However, this percentage is declining as tenants are staying longer and are able to work and live all-year round. They are seeking to create their own home with a personal style. But, to be honest, in the current market it doesn't matter, people are desperate to find a place. It will depend on the property and target audience if you want to rent it furnished or not.

What taxes do you pay?

Small investors buy privately and bigger investors will setup company structures to hold their assets for rental. It all starts with the purchase of a property and this tax will always be the same for private and business investors. Upon purchase you either pay 10% VAT (new build) or property transfer tax (ITP) which is calculated as follows: As a private investor, you pay:

• The "IBI and Basura" is a local tax paid on the cadastral property value of your property. The basura (means: tash) is the local community tax. This tax is a percentage ranging from 0,4. We pay about a 1.000 euro for a €750.000 apartment. Expect to pay about €2.000 for a €2.000.000 villa. Find here more detailed information about the cost of buying and owning property in ibiza.
• Income tax. When you rent out the property for the full year, you will only pay income tax on the income. Non-residents must pay tax on rental income at a flat rate of 19% for EU residents and 24% for non-EU residents.  When you opt for seasonal rental, or part of the year, you will pay tax on the actual income. On top, you will pay income tax on 'imaginary rent'. This is calculated at 1.1% or 2% of the cadastral value, taxed at 19% or 24% respectively . For example: If you own a second or investment home in Ibiza and you don’t rent it out, the Spanish tax authorities pretend you earn some rent from it. They estimate how much rent you might make, and you pay tax on that estimated amount. This is called "imaginary rent" or "deemed rental income."

As a business investor, you pay:

• The above-mentioned IBI and Basura.
• Instead of income tax, you will pay company tax which in general is 25% (2024), or 23% when your turnover is less than 1 million. Newly incorporated companies will pay 15% for the first 2 years.

Renovate for private use or financial gain?

Renovating a home to live in is still a very good way of securing your second home in Ibiza. 95% of our international clients are a huge fan of beautiful interiors, art and the latest fashion. Their homes need to look immaculate up to a certain standard. There are a lot motivated sellers selling renovation property because:

• they inherited the property (from an older person) (read: needs renovation)
• they don't have the funds to renovate (read: needs renovation)
• living in ibiza gets too expensive and move to the mainland (read: needs renovation)

It's a way of adding value to your property purchase, right from the start. If you do well, you could add 25-40% value and have something created that is 100% you. At the same time, when you don't know your market, and don't have a good network of builders/professionals around you, you might end up below the 25% and a lot of 'building stress'. At the same time, you see that renovating and selling is done a lot by islanders that have gained experience on the island and know what they are doing. Imagine business managers that have sold their business and see constant business opportunities in property. They can act quickly (being on the island), have their network of builders, know what type of setbacks to expect, etc. As you understand that a value-add of 20%, minus the property acquisition cost of 10-14% could make you und up with just 6-10% and a year full of headache.

Buy a turn-key property, free of stress, for personal use or investment.

You are looking to buy a home for pure relaxation, no stress... go for a turn-key ! This way, you keep your mind focussed on current or other projects and skip the liaising with renovation partners. On the other hand, you may take 2-3 years to break even on the property value, costs made and taxes paid . Still, property values seem always to be on the rise looking at 10-year timeframes. Turn-key properties are usually beautifully designed and properly maintained. Fall in love with at first sight, you're buying the finished product, a mix of someone else's vision, effort, and expertise. Overall, if you're willing to pay for the value that's already been added, a turn-key property can save you the "construction stress" At the same time, it provides with a high-quality, ready-to-enjoy home. It's an investment in your comfort, time, and future financial gains.

Pure investment... Property Development...

Your investment strategy is property development and you are looking to maximize the potential whilst mitigating risks. About 20 years ago, one could easily achieve a 30-40% ROI on a property development. The market wasn't as crowded as it is today. Today, developers from mainland of Spain and Europe are chasing plots to jump on the 'ibiza brand wagon'. As a result, the returns from developments dropped to the range of 15-25%, with an IRR of 10-20%. The higher the risk you take, the higher the potential rewards. The same goes for property development. You can buy a plot of land with or without license, but you will pay much more for the plot with a license, as there is someone else who has taken that risk for you. It will also depend on the classification of land (urban or rustic) if you can expect difficulties obtaining a license. Once the license is obtained and the negotiations with constructors and professionals have started, you can start building. Just make sure to calculate for some delays (permits/construction), extra costs and the highly satured market.

- Delays, the biggest enemy of a good return

Last week, I tried to get an appointment to renew my driver's license. I found out that I have to get a medical certificate first and from there I can convert my Dutch driver's license to a Spanish one, through 'trafico'. Good, took one morning off to organize this big piece of bureaucracy. I started the day by calling trafico for an appointment. No appointments are available... and, they couldn't really give a time/date that was available, not even in 6 months, or in one year... My Northern European brain had a difficult time processing this inefficiency and inexistence of a process that is so basic, we are talking about a driver's license, not a membership of the local library... In that case, you just want to speak to someone that can fix it. My gestor told me: "Ahhh yes, they don't have any appointments available at the moment... but please send me the documents, sometimes we are able to get an appointment..." 2 mornings spent on this adventure... 65 euros for the medical certificate... 6 euros for the photos... 200 euros for the gestor to organize the appointments and some extra costs (no idea how much) for the actual renewal... Today, driving around with a paper copy of my old expired drivers license without any confirmation if things will be fixed on the short term or longer term. It's that type of discomfort that comes with undertaking projects in Ibiza. Everyone loves the laidback vibe of the island. Note that this laidback vibe exists everywhere. Local administrations, builders, utility professionals, the cashier at the DIY store... You will just need to adjust your expectations. If you calculate a little extra waiting time and cost, you could be surprised in the positive way if things run smoothly. Another big cause of delays is staffing shortage . There is not enough affordable housing in Ibiza which makes professionals stay away from the island. If you are building, you are looking for the best carpenters, electricians and people that know how to mix the concrete. If not done well, the quality of your building (and value) run backwards. Of course, you have a contract for the building qualities, but there is a limit to what a builder can achieve with its workers. When there is a new project waiting to be started and yours was delayed, the finishing touches can take a long time. Delays that you can anticipate are the seasonal construction stops . In some areas (most touristic zones), you are not allowed to build in summer. Take this into account when preparing your budgets.

- Calculate at least 10% on top of every quote you receive

During construction, you can expect some unexpected costs. When doing the initial plans, you will have a helicopter view of the full development. Little details such as a tap, certain carpentry or an improved way for tiling that requires extra tiles? Unless you are a very experienced developer , you can always expect to spend a little more. Try and lock in the prices for building materials . Especially bigger construction companies have materials in stock from which you could benefit. Also, you might be tempted to add features or change specifications . Think of that latest domotica system, or changing the quality of the sliding doors. Or, or, or... Next to the delays caused by archeological finds or unstable soil, it can drive up the cost if you need to re-design or adjust to the situation. In short, be safe and include this 10% contingency in your budget. If it works out well, you will be much happier than the other way around. Key is always to do a proper DD, negotiate fixed-price contracts and be transparent about your thoughts/wants . Flag unwanted situations when they occur and stay on top to things to work in the most efficient way possible.

- Stay ahead of the competition

The influx of property developers has seen landowners asking top of the bill for their plots. This leads to either higher prices for the marketable product or, less margins. Sometimes, developers find themselves in bidding wars over the limited availability of buildable land. Once secured, you will also find this saturating during the construction phase. With so many developments happening at the moment, there is a high demand for building workers, quality contractors and materials. This can lead to staffing shortages, delayed timelines and even an opportunity for contractors to renegotiate their fees. In this market, you need to stand out as a property developer. Strategic product differentiation must be your keyword to capitalize on Ibiza's luxury brand appeal. Size doesn't matter anymore like it did before. It's the full package... Build for your ideal client. Partnering up with an established locally-based development team can really provide that advantage over external competitors. Especially when it comes to sourcing labor and materials. Your network is your biggest asset on the island.

- 2024-2025 Trends in Property Development

At LET US Ibiza, we receive about 1.200-2.000 enquiries per year which allows us to talk to many potential buyers. When building search profiles, we do the exercise of market demand, over and over again. Here I can spot a few trends that could help future property developers, build a product that today's buyers can't resist. What should you keep in mind for your property development?

1. Do your research and set your USPs! Understand the specific demands of your target market. Are you building for yourself, for the local market, for the second home market? What price range and lifestyle are you targeting? If you don't have a network, speak to a well-connected agent with experience in such projects. Note that you will find the best gains in niche markets. Specific styles, amenities, finishing & brand building could significantly increase the market value per m2.
2. Coffees & lunches to grow your network. Establish relations with architects, agent(s), builders, lawyer(s) and local authorities. It really helps push your project in the most efficient way.

Let me summarize the biggest trends in property development that will shape Ibiza in the next 10-15 years. Smart developers who are able to capitalize on these type of concepts will most likely standout and earn a sales premium. In the end, this will positively impact your return on investment and keep competition at a distance. Luxury eco-conscious developments: Sustainability becomes more and more important for affluent buyers. 34% of UHNWIs are looking to improve the energy efficiency of their first and second home(s) and 29% is only looking to invest in the most sustainable prime assets. This trend will most likely continue fueled by innovations in this industry. In the end, we are all looking to reduce our carbon footprint and reduce cost. Developers tapping into high-end properties with a lower carbon footprint, water conservation, renewable energy sources and sustainable building materials, will win the future! Branded residences are here to stay: Developers that are able to connect their product with major hotel brands and luxury boutique chains can benefit from the brand and following of those partners. Add resort-style amenities and you are very close to serving a client who is looking for an easy and turn-key project with like-minded owners. This means i ntegrating private residences, sports clubs, spas and entertainment to create highly valuable 'living-meets-leisure' concepts . 'Bizcation': Remote working is becoming mainstream and affluent digital nomads are seeking properties that allow them to combine a holiday with a place to work. Renting out property/apartments for over 1-month is allowed without a tourist license. Therefore developing such properties with communal amenities such as workspaces, co-working lounges and smart home technologies can meet demands for months-long stays. Note that you can't have more than 10 of those units, otherwise, you are considered to be a 'professional landlord' which means you need to offer a minimum contract duration of 7 years. This law has recently changed (2023) to protect the housing market in Ibiza. Before you could freely offer any contracts over 1-month.

Wellness boutique developments: Ibiza is becoming more and more a space where you go to for retreats, walks in nature and sports. Hello, bohemian vibes and outdoor lifestyle! Properties centered around amenities such as yoga/meditation, nutrition, gyms and spa/healing facilities will attract buyers seeking a healthy and mindful lifestyle. Again, differentiation is key!