When considering investing in real estate for vacation rental purposes in the Costa del Sol, owners must decide between offering long-term or short-term rentals.
This decision is influenced by various factors, including the nature of the property and the owner’s goals. Both rental strategies have their advantages and disadvantages, and it’s crucial to carefully evaluate each option before making a decision. This article provides insights into the pros and cons of long-term and short-term vacation rentals and offers tips on how to market each strategy effectively.
Advantages of short-term rentals:
- Greater flexibility – Since a different type of contract is signed for short-term rentals, the period can be defined and negotiated between the landlord and tenant. This allows the landlord to not be “tied” to a rental for 5 years (or 7 years for legal entities) and instead choose short-term rentals, such as increasing the rent during peak season or having a period for personal use of the property.
- Higher income – Since the rental period is short (up to 11 months), it is possible to increase the rent without being regulated.
- This could result in higher profitability of the rental property. However, it is important to note that variables such as the time the property will be vacant between contracts will reduce profitability compared to long-term rentals.
- Niche for students and business travelers – Many master’s students or business travelers are relocated to a city for a few months and actively seek short-term rentals that are furnished and have services and supplies already activated. They are willing to pay more in exchange for greater comfort and good location in the city.
- Short-term rentals have become very popular lately, mainly because of their potential for higher profitability and also driven by new limitations on rental prices for regular housing contracts. However, a good analysis should be done that includes all associated expenses and taxes, effort in maintenance, risk of having different tenants, etc. to be able to conclude what type of rental you want for your property.
Advantages of long-term rentals:
- Greater predictability – Since it is a rental of several years, it will allow the landlord to have a forecast of profitability and income. It is very important to have made a thorough study of the potential tenant’s profile to avoid headaches later on.
- Less dedication and no furniture – As long-term tenants typically have their own furniture, the dedication and maintenance required for the property will usually be minimal compared to short-term rentals.
- Lower costs – Long-term rentals typically have lower costs because, as mentioned above, they usually do not have their own furniture (the tenant will place them) and the consumption and supplies (water, electricity, gas, Internet) are all assumed by the tenant.
TAX DEDUCTION ON RENTAL PROPERTY IN SPAIN:
Please note that the information provided here is for general guidance purposes only and should not be taken as professional tax advice. Tax laws and regulations vary by jurisdiction and are subject to change. It is important to consult with a qualified accountant or tax professional for advice on your specific situation. The guidelines provided in this article are not intended to be a substitute for such advice. Always verify the accuracy and applicability of any information presented here before making any decisions based on it.
Reduction of 60 percent:
Did you know that if you rent a property to a tenant who will live there on a regular basis, you will only pay taxes on 40% of the rental income?
Which landlords can apply the 60% reduction?
First of all, the rented property must be used as the tenant’s home and not for any other purpose. For example, renting a property for a professional office or to establish the headquarters of a company does not entitle you to apply the reduction.
In addition, it is necessary that the rents obtained are taxed as real estate capital income, and not as economic activity.
In that case, the income obtained will be taxed as an economic activity, and there will be no right to apply the 60% reduction. This reduction is only intended for cases in which the taxpayer obtains real estate
Other expenses that you can deduct:
There are many expenses related to vacation rental properties that the owner can deduct in their income tax return.
However, these expenses can be only deducted in relation to the period of time in which the property has been rented. This means that the more weeks you rent your property to tourists, the more expenses you can deduct:
• Expenses for the repair and maintenance of the property (excluding extension and improvement works)
• Property tax (IBI), community expenses, and garbage tax
• Mortgage interest and expenses for the amortization of the property
• Insurance that covers property risks
• Costs of intermediary agencies or ads
• Expenses for electricity, water, gas, etc.
• Other expenses that are properly justified and directly related to the rental. The deduction for interest, financing costs, repair, and maintenance cannot exceed the total amount of the obtained gross income.