Most of my clients, and in general most foreign investors, buy in Spain to achieve the double objective of having a holiday home/second residence/future retirement home, and having an additional income.
A city like Barcelona has an enormous appeal, it attracts visitors from all over the world, and it offers the unique opportunity of acquiring a property at an affordable price, and earning money on both the rental of the same property and a possible future resale, now that prices are increasing.
Other areas like the coasts work also extremely well as a lot of people move there to spend the Winter motnhs.
But what are the possible ways to rent the property out, how do they work, and what are the advantages and disadvantages of each?
Essentially, the three possible ways to rent out a property are:
1. Tourist rental
2. Medium-term rental
3. Long-term rental.
Let’s look at each option in detail.
Tourist Rental
Tourist rental means renting out to tourists by night, just like a hotel.
To do tourist rental it is mandatory to have a tourist licence. It is not possible to get new tourist licences in Barcelona anymore, so the only option is to buy a property that already has a tourist licence. Renting out without a licence is subject to fines up to 90,000€.
The flat can be advertised on websites such as Airbnb. However, if you do not live in Barcelona, you will need an agency, who can take care of managing the rental business, doing the check-in/check-out, supporting the tenants, etc.
For this type of rent, the flat must be fully furnished and equipped, including wi-fi internet connection, bedlinen and towels.
Here are the advantages of the tourist rental:
- It is possible to block the flat for personal usage in the system of the agency that manages it and use it for weekends or short stays;
- The rent that can be asked per night, especially during the peak season, is proportionally higher compared to the other two forms of rental;
However, this form of rental presents serious disadvantages:
- The flat may remain empty for long periods of time, not only because of low tourist season but also because there is very high competition on this form of rental. The trade-off between lowering the price a lot and getting more bookings may not be worth it, considering the high prices that this form of rent entails;
- The agencies that manage tourist rental flats, usually charge very high fees, from 30% to 45% of the rent;
- The owner pays for the utilities (water, electricity, gas). This means that if the tourists go out in the morning and leave the air conditioning on all day, you (owner) pay for it;
- Sometimes, unfortunately, tourists do not take very good care of the apartment, especially considering that they only spend a few nights in it, and that it is meant as a cheaper option than hotel rooms, with less control;
- The deposit for a stay is usually of a few hundreds of Euros (300€ – 400€). It may not be enough to cover possible damages to the apartment.
- There have been a lot of issues related to tourist rental in Barcelona over the past few years. Many buildings are against it, just because the tourists often behave in a non-respectful way and disturb the neighbours. Therefore, it may happen that even if you have a tourist licence, the building may have forbidden tourist rental as part of the rules of the community of owners;
- The general costs associated to tourist rental (between the utilities and the agency fees) are very high. Even if you think that it is the most profitable form of rental because you can rent out by night, when you look at the actual numbers it may become much less interesting.
- Additionally to the management costs of this form or rental, just because it is not possible to get any new tourist licence in Barcelona, the price of properties with tourist licences are quite high. You end up paying a lot only for the licence to the point that it could take you several years of rental to recover this cost.
Medium-Term Rental
It means renting out a property between 2 and 11 months. From 12 months, it becomes long-term rental.
It is an extremely popular form of rental in Barcelona, there is a huge demand for it and the apartment is never empty. Before a tenant moves out, a good agency has already found a new tenant, so do not make the mistake of thinking that the property remains empty for months. On the contrary, the demand for this form of rental is higher than the offer.
NOTE: This is the form of rental that we offer to our clients, so I know it very well. Everything I say in this section is based on my direct experience with our rentals. We have been renting out flats this way for years, by working with a specialised partner, an agency we have selected amongst many in Barcelona, for their professionalism and quality of service.
I offer the same service via another partner agency on the Costa del Sol, in the area between Marbella and Estepona.
Like with tourist rental, the apartment must be fully furnished and equipped, with internet connection, TV, washing machine. However, there is no need to put towels and bedlinen: the tenants use their own.
Medium-term rental has several advantages:
- The profile of the tenants is mostly higher grade students and young professionals, who need to spend time in Barcelona for either work or study. On the Costa del Sol, it is mainly people who work in hospitality, real estate, or who spend the Winter months in the region. Also, people who are refurbishing their own property and need a place to stay in the meantime, or people who are looking for a property and decide to spend some time living in the area before or while buying. In general, it is a “safer” profile than tourists, and the fact that the tenants spend months in the apartment usually implies that they are going to take good care of it.
- Medium-term rental does not require any licence. it is perfectly legal, and can be done without any previous authorisation nor administrative paperwork.
- Compared to long-term rental, it is possible to ask for considerably more money. If – for example – a 2 bedroom flat in the centre could be rented out long-term for around 900€, the medium-term rent is between 1200€ and 1300€ or even more.
- If you finance the purchase of a property with a mortgage, usually the rent you get from this form of rental is high enough to cover the monthly payments entirely.
- The agency selects the tenants strictly, asking for proof of income, salary payslips, or salary of the parents (for students) etc. Additionally, the deposit is usually 2 months, which can cover not only any possible damages to the property, but also part of the rent, in case the tenant has problems paying. I must say that, in over 13 years, I have never seen a case of medium-term tenant not paying the rent. Additionally, it is possible to take an insurance that intervenes if the tenant stops paying the rent. None of our clients has done this, and they never had any problems, but it is good to know that there is this opportunity.
- The fee paid to the agency is much lower than the one for tourist rental. Usually it is around 15% – 20%. In Barcelona, we have a deal with our partner agency, for our clients, to pay only 10%. The fee covers the advertisement of the flat, selection of the tenants, check-in and check-out of the tenants, inventory, administration of the rent and the utilities, support for any request by the tenants, and more.
- The tenants pay for the utilities (water, electricity, and gas). Every month, they transfer some money on top of the rent and at the end of the tenancy the difference in the actual consumption is sorted out by deducting the money from the deposit. This is a very important difference with tourist rental. Usually, the internet connection is offered by the owner.
This form of rental presents a couple of disadvantages:
- It is more complicated to book the apartment for personal usage for a weekend, like with tourist rental. If the owners want to use it themselves for some time, they have to inform the agency that will not advertise that period of time as available. However, be careful that this can turn into a possible loss of rental opportunities. You may miss a long tenancy of 10 or 11 months, only because you want to use your flat for one month.
- For this type of rental, the properties must be in good areas. In Barcelona, it works at its best in all Ciutat Vella, Eixample, Poble Sec, all the areas by the sea (Villa Olimpica, Poble Nou, Diagonal Mar), the area around Glories, the lower part of Gracia, essentially, in the areas where foreign investors buy anyway, even if it is for a future resale or for personal use. On the Costa del Sol the area is less of a priority.
Long-Term Rental
Finally, long-term rental means renting out for minimum one year. the usual contract is 5 years.
It is the classic type of rental, and the tenants are people who have their permanent residence in the apartment.
This form of rental has been highly controversial over the past few years, especially in Barcelona. The 2023 Housing Law does not protect the owner at all and it allows tenants to keep living in the apartment if they stopped paying the rent, as long as they demonstrate that they are “vulnerable people”. And many of them are very good to do that…
Real estate agencies advertise this form of rent. The fee that they ask the owner is usually one month of rent.
This this form of rent presents a few advantages:
- The flat is rented out for minimum 5 years.
- It is the ideal form of rent if you own a very high level apartment in luxury areas. You can ask for a high rent, and you can find good tenants able to pay for it.
- The apartment can be offered unfurnished, so you save on the money of the furniture and equipment.
- The tenants pay for the utilities and they put them in their own name.
However, there are several disadvantages:
- The rent that is possible to ask is considerably lower than medium-term rental and tourist rental, unless with are talking about very expensive properties.
- In Spain, and especially in the Housing Law, the tenant is very protected. If, for any reasons, your tenants stop paying the rent, you’ll have to start a legal procedure to evict them and it will take several months (up to 24) and high legal costs. Additionally, when you are in this situation, you don’t know in which state they are going to leave the property.
- If is impossible to use the aopartment for yourself with this form of rental. You can negotiate with the tenant to leave the flat only if you decide to resell it or to live in it permanently, and even so it may be hard to convince them to accept.
- If you want to change the conditions of the rent, you have to wait for a long time. With medium-term rental, you can do it every few months.
- If the tenants stop paying for the utilities, the supply in your flat with be cut and it is quite costly and long to sort that out.
Conclusions
To sum up, every form of rental has its advantages and disadvantages. In Barcelona, if you do not buy a property with tourist licence, the choice is only between medium- and long-term rental. On the Costa del Sol, it is still possible to apply for a new tourist license.
In general, I definitely recommend medium-term rental, because of the better yield, the much lower risk (tenants do not stop paying, and if they do, it is much easier to get rid of them); and for the much easier management (you give the keys to the agency, and forget about the apartment).
Wherever possible, a mix between tourist rental in the Summer months and medium-term rental is the perfect solution to maximise profitability.
With the support of my rental partners, we can assist you with anything you need to rent out your property.
You may want to check my YouTube Playlist about the different type of rentals to get all the details, including on the taxes you have to pay when you rent out a property in Spain.
Do not hesitate to contact me for any more information you might need! We are at your disposal to help you get the best return on your investment.
