Investing in buy-to-let properties in Spain is an attractive opportunity for foreign investors, but choosing between long-term and short-term rentals can significantly impact profitability, tax liabilities, and management responsibilities.
Both strategies offer unique benefits and challenges depending on the location, tenant type, rental demand, and legal requirements. Investors must carefully analyze each model to determine which one aligns best with their financial goals.
This guide provides a detailed comparison of long-term and short-term rentals in Spain, including profitability analysis, risk assessment, tax implications, and regulatory factors.
1. Understanding Long-Term and Short-Term Rentals in Spain
1.1 What Are Long-Term Rentals?
A long-term rental involves leasing a property to a tenant for 12 months or more. The tenant typically uses the property as their primary residence, ensuring a stable and predictable rental income.
Key Features of Long-Term Rentals:
- Fixed monthly rent.
- Lower tenant turnover, reducing vacancy risk.
- Tenants are responsible for most utilities and minor maintenance.
- Governed by Spanish Urban Rental Law (Ley de Arrendamientos Urbanos – LAU).
Typical Tenants for Long-Term Rentals:
- Local families seeking permanent housing.
- Working professionals relocating for jobs.
- University students needing accommodation for academic terms.
- Retirees looking for a residence in Spain.
1.2 What Are Short-Term Rentals?
A short-term rental, also called a vacation rental, refers to properties rented for a few nights, weeks, or months, typically targeting tourists, business travelers, or digital nomads.
Key Features of Short-Term Rentals:
- Higher rental income potential per night compared to long-term rentals.
- Requires active management, including guest check-in, cleaning, and marketing.
- Seasonal income fluctuations based on tourism demand.
- Subject to strict local regulations and licensing requirements.
Typical Tenants for Short-Term Rentals:
- Tourists visiting Spain for vacations.
- Business travelers staying for temporary work assignments.
- Digital nomads seeking flexible accommodations.
2. Financial Comparison: Which Option is More Profitable?
The main factor in choosing between long-term and short-term rentals is profitability, which depends on rental yields, vacancy rates, and operational costs.
| Factor | Long-Term Rentals | Short-Term Rentals |
|---|---|---|
| Rental Income Stability | Predictable, fixed monthly income | Seasonal fluctuations |
| Gross Rental Yield | 4% – 6% annually | 6% – 10% annually |
| Vacancy Risk | Lower (long leases) | Higher (depends on tourism demand) |
| Property Management Costs | Lower (minimal maintenance) | Higher (frequent cleaning, guest handling) |
| Legal Restrictions | Few regulations | Strict licensing rules in many cities |
2.1 Rental Income Potential
Example Calculation: Long-Term Rental in Madrid
- Property Purchase Price: €300,000
- Monthly Rent: €1,200
- Annual Rental Income: €14,400
- Gross Rental Yield: 4.8% per year
Example Calculation: Short-Term Rental in Madrid
- Property Purchase Price: €300,000
- Nightly Rate: €120
- Annual Occupancy: 70% (256 nights per year)
- Annual Rental Income: €30,720
- Gross Rental Yield: 10.2% per year
Short-term rentals can generate double the income of long-term rentals, but they come with higher operational costs and management responsibilities.
3. Pros and Cons of Long-Term Rentals
3.1 Advantages of Long-Term Rentals
- Stable Income: Monthly rent payments provide predictable cash flow.
- Lower Management Effort: No need for frequent tenant turnover, check-ins, or cleaning services.
- Fewer Legal Restrictions: No need for a tourist rental license.
- Lower Vacancy Risk: Leases last 12 months or longer, ensuring continuous occupancy.
- Tenants Cover Utilities: Long-term renters typically pay for water, electricity, and internet, reducing expenses for landlords.
3.2 Disadvantages of Long-Term Rentals
- Lower Rental Yields: Rental income is generally lower compared to short-term rentals.
- Limited Flexibility for Owners: Once a lease is signed, landlords cannot use the property freely.
- Tenant Protections and Eviction Risks: Spanish law heavily favors tenants, making evictions difficult if tenants stop paying rent.
Example:
If a tenant stops paying rent, eviction through legal procedures can take 6 to 12 months, leading to significant financial losses.
4. Pros and Cons of Short-Term Rentals
4.1 Advantages of Short-Term Rentals
- Higher Rental Yields: Short-term rentals can generate 50% – 100% more income than long-term rentals.
- Flexible Use of the Property: Owners can block availability for personal use.
- No Risk of Long-Term Tenant Disputes: No risk of non-paying tenants requiring lengthy eviction processes.
4.2 Disadvantages of Short-Term Rentals
- Higher Operating Costs: Cleaning fees, maintenance, and property management services add expenses.
- Legal Restrictions: Many Spanish cities restrict vacation rentals to protect housing supply.
- Seasonal Demand Fluctuations: Occupancy rates vary, leading to low-income months in the off-season.
5. Legal Considerations for Short-Term Rentals in Spain
Many cities have introduced regulations to limit the impact of short-term rentals on the housing market.
| City | Short-Term Rental Regulations |
|---|---|
| Barcelona | Requires a tourist rental license (hard to obtain). |
| Madrid | Bans short-term rentals in most residential buildings. |
| Valencia | Only allowed in designated tourist zones. |
| Seville | Limited licenses and neighborhood restrictions. |
| Malaga | Requires a license; strict zoning laws apply. |
Failure to comply with local regulations can result in fines of up to €30,000.
6. Which Buy-to-Let Strategy is Best for You?
Choose Long-Term Rentals If:
- You want stable, predictable rental income.
- You prefer less property management work.
- You want to avoid legal restrictions on short-term rentals.
- You are investing in non-tourist areas.
Choose Short-Term Rentals If:
- You want higher rental yields and faster ROI.
- You are willing to actively manage the property or hire a management company.
- You are investing in tourist-heavy areas.
- You have obtained the necessary tourist rental license.
Alternative: Mid-Term Rentals (1-6 months)
- Targets expats, business travelers, and digital nomads.
- Generates higher income than long-term rentals but with fewer legal restrictions than short-term rentals.
- Increasingly popular in Madrid, Barcelona, and Valencia.
7. Get Expert Advice to Maximize Your Buy-to-Let Investment
Need Help Choosing the Right Rental Strategy?
Selecting the right buy-to-let model requires careful analysis of rental yields, legal restrictions, and management costs.