Diaz has found himself surplus to requirements in Carlo Ancelotti’s plans at the Estadio Santiago Bernabeu in recent months.
However, despite the club’s attempts to move him on ahead of the 2021/22 season, no exit deal materialised for the former Lyon hitman.
According to reports from Diario AS, the Dominican Republic international was offered a route out of the club, but he rejected a season long loan at Rayo.
The newly promoted side offered Diaz the chance to remain living in Madrid but with the bonus of playing regular top flight football.
However, despite offering to match his current wage in Vallecas, Diaz rejected the deal and opted to sign Radamel Falcao instead.
Diaz will be offered the chance to leave Real Madrid again in the January window, but Rayo’s Falcao gamble has already paid off based on his early goal scoring form back in Spain.