Buying a rural property to rent it out: what to consider

This guide has a general educational purpose and does not constitute personalised financial, tax or investment advice. It does not recommend buying any specific property, nor does it promise any level of return. The general patterns described here do not guarantee future results, and any decision of this kind should be analysed with case-specific data and, where appropriate, with independent professional advice familiar with both the specific property and the buyer's personal situation.

Buying a rural property with the intention of renting it out is one of the routes mentioned in the framework guide on the rural property as an investment for the asset to generate some kind of periodic return beyond its possible future appreciation. This guide goes into more depth on what types of tenancy exist and what is worth considering before making this decision, without offering return figures or reference yields, because these depend on too many variables specific to each property and each local market to be generalised responsibly.

Before going into detail, it is worth clarifying that renting out a rural property is not an automatic process, nor one free of management: it involves finding a suitable tenant, drafting and signing a contract with reasonable safeguards for both parties, and maintaining a degree of ongoing supervision for the whole term of the contract, aspects developed throughout this guide.

Rural tenancy, regulated specifically and differently from urban residential tenancy, is the most common route when the aim is for a third party to farm or graze the property in exchange for a periodic rent. This type of contract has its own specific legislation — rural tenancy law — with particularities regarding minimum duration, extensions and tenant rights that differ substantially from a conventional urban tenancy, which is why it should always be formalised with specific legal advice and not with a generic contract template found online.

Another distinct route is renting out existing buildings on the property — a house, a barn, a converted outbuilding — for residential or tourist use, subject to different regulations from those governing the rural tenancy of the land. If a holiday rental of a house on a rural property is being considered, it is worth finding out in detail about the specific requirements that usually apply to this type of activity in the relevant autonomous region and municipality, which may include licences, specific registrations or occupancy limits that are worth knowing before advertising the property.

There is also the possibility of renting out land for uses other than conventional farming or livestock, such as leasing for renewable energy projects, covered in the specific guide on leasing land for wind energy, or other uses compatible with rural land under the local regulations in force at any given time. Each type of tenancy has its own legal framework, its own risks and its own management, so it is worth treating them as independent decisions rather than as interchangeable variants of a single general idea of "renting out the property".

It is also possible to combine more than one type of tenancy within the same property, for example renting out the farmland to a farmer and, separately, a building to another person for residential use, as long as both uses are compatible with each other and are clearly delimited in area and conditions within each corresponding contract, avoiding overlaps that could generate conflicts between the different tenants.

Finding a reliable tenant for a rural property is not always straightforward: it depends on local demand for farmland or grazing land to lease, on the specific type of property and on the conditions offered to the market. In some areas with strong demand for farmland there may be several interested parties competing for the same plot; in others, especially properties with lower soil quality or poorer access, finding a suitable tenant can take considerably longer than initially expected.

It is worth finding out about the track record and solvency of the potential tenant before signing, especially for long-term tenancies, and setting out the terms of the contract with complete clarity in writing: permitted use of the property, exact duration, rent amount, each party's maintenance obligations and what happens if the tenant breaches their contractual obligations. A well-drafted contract, reviewed by a qualified professional, significantly reduces the risk of subsequent disputes that could be costly to resolve.

It is also worth bearing in mind that rural tenancy legislation grants the tenant certain rights that may limit the owner's ability to recover use of the property earlier than planned, even if the owner's plans change due to personal circumstances. Understanding these rights well before signing is just as important as agreeing the rent, and not knowing them is a common source of unpleasant surprises for owners who sign without adequate advice.

In areas with an active farming community, talking directly to local farmers or livestock keepers, or with the relevant regional agricultural office, can make it easier to find a trustworthy tenant with better references than those obtained by publishing a generic advertisement without any prior filtering, as well as providing valuable information about the usual tenancy conditions in that specific area.

A rented property is not, in general, a completely passive investment in the way a fund managed by third parties can be: it requires some ongoing management, even if of lesser intensity than direct farming by the owner. Usual tasks include periodic collection of the rent, monitoring compliance with the contract by both parties, maintaining the infrastructure that remains the owner's responsibility as agreed, and periodic contact with the tenant to resolve any questions or issues that may arise.

If the owner does not live near the property or does not have enough time for this ongoing management, there are managers or administrators of rural properties who can take on these tasks in exchange for an agreed fee, an option worth considering depending on the size of the property and the complexity of the management required against the real cost of hiring that specialised external service.

Maintenance of the property, even while rented to a third party, remains largely the owner's responsibility unless the contract expressly assigns certain specific obligations to the tenant. This includes aspects such as payment of certain taxes associated with the property, insurance on the property if there is any, and the upkeep of basic infrastructure, expenses that should be taken very much into account when assessing the real net return of the whole tenancy arrangement.

It is also worth planning, as part of ongoing management, periodic reviews of the physical condition of the property — not just of the paperwork of the contract — to detect any deterioration of the infrastructure or any breach of the agreed conditions by the tenant in good time, rather than only discovering it when the contract ends, when correcting any accumulated problem can turn out to be considerably more costly.

Before buying a property with the specific intention of renting it out, it is worth researching the real demand for tenancy in the specific area in detail: talking to local farmers or livestock keepers, to a real estate agency specialised in rural properties in the area, or to the regional agricultural office can give a much more reliable idea of real demand than any generic estimate made without specific knowledge of the local market.

It is also worth objectively assessing the characteristics of the property that make it more or less attractive for tenancy: soil quality and type, availability of water for irrigation if applicable to the intended crop, ease of access, real usable area and the state of conservation of the existing infrastructure. A property with good starting characteristics generally finds it easier to attract a tenant than a property with significant limitations, although this does not guarantee any specific outcome in any particular case.

This guide does not offer any expected return figure for tenancy, not even as an approximate indicative range, because it varies too much according to the type of crop or use planned, the specific geographic area, soil quality and the terms negotiated in each particular contract. Any return estimate should be made case by case, with real data on the property and the local market, ideally with the help of a professional specialised in managing rural properties in the area.

Finally, it is worth reflecting on whether the buyer's own profile fits with the management demands that tenancy involves: anyone looking for a truly passive investment, with no ongoing management involvement at all, may find that renting out a rural property involves more work than initially expected, and this circumstance is worth assessing honestly before committing to the purchase.

Income obtained from renting out a rural property has its own tax treatment, different in some respects from that of other types of property income, and it is worth discussing with a tax adviser before signing any contract, as it can influence both how the income received is declared and which expenses are deductible against that income received by the owner.

In addition to the rent agreed in the contract, it is worth taking into account other financial costs associated with the rented property that reduce the real net return of the transaction: municipal taxes, possible management costs if an external administrator is hired, and the cost of maintaining the infrastructure that remains the owner's responsibility as agreed in the corresponding contract.

This guide cannot anticipate how the tax treatment applicable to this type of income will evolve in the future, nor how demand for tenancy will evolve in any specific area, so any long-term projection of the expected net return should be treated with due caution and reviewed periodically with up-to-date professional advice, rather than being treated as definitive at the time of purchase.