Having a second residence in Spain is quite common, proof of this is that there are more than 3.5 million families that have a second house either on the beach, on the mountain, in the countryside or in the village. These properties are usually used by their owners or family members for their personal enjoyment during holidays or weekends. But at present, approximately 35 per cent of these residences their owners have decided to rent them to generate recurring passive income, and are not fixed expenses for the simple fact of having a house.
This growing trend shifts the focus from the expense of a second home to additional income and investment. Technology has made it easier, faster and more direct to offer a property to other users and generate a return.
How can we generate a return?
There are 2 alternatives:long-term letting or vacation rentals.
- Long-term letting: This means letting the property to a family as their year-round home in return for monthly rent. It is the classic example of recurring passive income:
A contract is signed between the tenant and the owner, usually with a minimum duration of 1 year, although it should be borne in mind that the last amendment to the Urban Leasing Act states that the minimum duration of the leases for habitual housing is 5 years (except for some exceptions).
Using your second home for long-term letting has a disadvantage: You cannot use it for holidays or weekends, but you receive monthly rental income in return.
This type of rental has a advantage from a tax perspective, because there is a 60% reduction for owners: of every €100 received in rent, only €40 is subject to tax.
Other advantages are that, apart from IBI property tax, expenses such as electricity, water and communal charges are borne by the tenant, removing costs the owner would otherwise pay while the property stood empty.
- Holiday rental or Short term rental: Si tu vivienda está ubicada en una zona turística y además la has cuidado con esmero para que sea bonita y atractiva, el alquiler con fines turísticos es tu opción más rentable. A diferencia de la anterior, esta opción te permite elegir los periodos que la pones en alquiler, por lo que ofrece una flexibilidad mayor al poder compatibilizar el uso personal con la posibilidad de rentabilizar la vivienda.
The profitability in some cases may be greater than long-term rent, but the work and costs of managing it are also greater, so it is advisable to take pencil and paper and perform accounts of the 2 options.
If the second home is near your main residence, you can list it on platforms such as Airbnb or Booking and manage check-ins and check-outs yourself.
Instead, if you do it yourself is not what you are looking for, there are a lot of specialized companies that can handle the whole process without having to do any work.
Which option is more profitable?
The answer depends on factors such as condition, location, fixed costs and variable costs. As a guide, a long-term annual return from 6% is attractive: calculate the annual rent as a percentage of the property's purchase value.
On the other hand, in the tourist rental, if you detract from all the expenses and value the work of managing it (if you do it yourself) and if the profitability is higher than the rent to Largo Plazo, go ahead.
As mentioned earlier, long-term letting benefits from a 60% tax reduction, with no equivalent incentive for holiday letting.
A second home can also generate a return through its eventual sale, so it is important to study the property, location and factors that could help its value appreciate over time.
In Dream Sun Spain We have a team of Architects, Economists and real estate experts who can help you in the decision to invest in a second residence.
