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Long vs. Short term rentals

The benefits and disadvantages of both long term and short term rental is a topic which has been discussed for a while. In particular, short-term rentals - also known as holiday rentals, have been in the public eye recently, due to changes in the tourist accommodation laws in various regions within Spain.

There are a multitude of reasons to consider such as tax burdens, economic stability and more before choosing one type of rental over another. The controversy arises with holiday rentals due to the so-called "boost of holiday homes" in tourist-saturated areas.

Long-term rental prices are going up due to an increase of holiday home presence in cities, as covered recently by the Spanish media. However, there are several reasons behind the increase in long-term rental prices.

But the truth is that short-term and long-term cannot be compared as they cater to different niches with different business models.

The demand for a holiday rental is completely different from that of residential rental. Although the main asset of each model is the same.

Rent for long-term

Long-term rentals offer security and stability to the property owner over seasonal rentals. The residential or long-term renting model continues to be the most popular and also offers financial stability to the owner.

Long-term rentals are the most advantageous option as far as tax deductions and management expenses are concerned. Long-term rentals offer several advantages to the property owner, such as tax deductions (homeowners can deduct expenses related to the rental activity and claim them back from the Spanish tax office, such as electricity and IBI etc).

The savings for property owners who choose the long-term rental option are estimated to be between 21% and 25%.

Long-term rentals also offer peace of mind as far as managing the property. There is a lot less work required in terms of organising check ins and check outs and key exchange etc. as there is with a short-term rental. The only thing a long-term property rental owner must stay on top of is regular maintenance of the property.

However, investing in a property to be used as a long-term rental is not without risk. Although it is possible to achieve greater profitability in the long term, there are many cases where disagreements between owner and tenant arise such as problems with monthly payments and defects within the property, etc.

Holiday rentals

Holiday rentals have become a trend in recent years. However, there have been more professionals around running holiday rentals in Spain than the majority thinks. The holiday home market is a reality that, during the last 10 years, has gradually found its place in the Spanish tourist industry.

This model of tourist accommodation is a type of home rental that is gradually becoming subject to specific regulations throughout Spain.

In terms of its advantages, investing in a home to be used as a holiday rental is an option that can provide a short-term return on investment. However, it is subject to many factors for example, your profitability will change dramatically if you have a two-bedroom apartment in the city centre of Malaga compared to a beach villa in Valencia.

This type of accommodation has grown together with the increasing number of tourists and according to the Spanish media, more than 22 million travellers have opted to stay in private holiday accommodation in their  choose destinations, in the last two years. The use of holiday rentals in Spain has increased by 32.5% in 2017 compared to 27.2% in 2015.

In addition, if owners manage their holiday homes and oversee the whole process, they can deduct associated expenses from their annual tax return, just like a long-term rental. However, this situation changes if you hire a management company.

In case of hiring management services for taxes such as check in and check out, cleaning, the booking process and key collection, holiday rental income can decrease from 15% to 25%.

Among other disadvantages, the temporality of this type of rental is one of them. In order to achieve maximum profitability with a tourist rental, it is necessary that the house is occupied for a minimum number of nights, something that is not always easy to achieve.

Therefore, it is always advisable to carefully study the factors associated with the opportunities that your housing offers as tourist accommodation. Among other aspects it's important to be able to strongly promote the versatility of your property during the different seasons of the year.

Which one is for me?

As always, the answer depends on many factors. The most accurate decision will be influenced by various factors relating to location, type of property and your personal situation.

The two options cover different needs for different aspects of the housing market in both urban and rural areas. As we mentioned before, the location and the regulation of tourist accommodation in your Autonomous Community etc. can play a role when it comes to the return on your investment.

Don’t forget to consider the impacts that renting a holiday property will have on you personally. Investing in a holiday home as a form of business is a big commitment so think carefully before you decide to invest.

 

Whichever type of rental you choose will have a different impact on your income, so it’s advisable to study your personal situation carefully before making a commitment.

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