The vacation rental has become the star investment for small and medium size investors, attracted for the higher profitability that theoretically they can get in comparison with the traditional rental. Of course, this is not always like that, because there are risks involved in this kind of renting, also a legal gap regarding to its fiscal taxation and requirements. In this article, I would like to analyse its current situation in the market and the different situations that can happen, with the purpose of having enough information by the time of choosing one option or another.
If we analyse the average profitability according to the published data by Airbnb Spain in year 2017, the return of investment for vacation rental is over 6% on interior areas, and if we get closer to coast areas with a high occupancy, it can get up to 30%. Without doubts, this is an incentive for any investor, because if we compare this with any financing product that we can hire nowadays, it seems like there is no competence.
However, in traditional rental the average of monthly rent is 570 € -if we use data from the last study published by the Council of Madrid-, which implied 6.840 € per year. According to the same study, in an area outside the city centre, the annual incomes of vacation rental with an average occupancy of 65%, is around 20.000 € per year. Thus, we are talking about achieving 1.000 € more per month with this kind of renting and sure, with these numbers logically this new model is gaining additional ground to the traditional one.
Then, the houses must accomplish a series of safety and inhabitant requirements for using in this type of renting. Concretely in Andalusia, those requirements are gathered in the “Decreto 28/2016, de 2 de Febrero”. Bellow, I attached a summary of those requirements:
- Having the occupancy licence and accomplishing with the technical and quality demanded conditions.
- The rooms will have direct ventilation to the exterior or to interior yards and darkening
- Being furnished and with the necessary elements and belongings for its immediate use.
- Cooling for fix elements in rooms and dining rooms, when it´s the period of functioning, which is from March until September. If the functioning period is from October until April, both included, they must count it as heating.
- First Aid Kit.
- Offering tourism information of the area (tourist attractions, restaurants and cafes, commerce and food shops, parks, medical services, transport, local map and entertainment guide).
- All the houses must have Complaint Forms to the disposition of users and a sign indicating it on a visible place.
- Cleaning service of the house before check-in and after check-out of each guest.
- Bedding, linen, household of the house in general, etc. depending of the occupancy of it. In the same way, it must count with an extra set of reposition.
- Facilitating to users a phone number for solving immediately any request or incident regarded to the house.
- Being available for guests for any information and instructions of white goods and other devices that requires it.
- Giving information to the users about house rules regarding to the use of the facilities, rooms and house equipment, as well as the admission and existing pets in the property, restriction for smokers, etc.
In addition, it is important to highlight, that both incomes -the vacation rental and the traditional one- must be stated in the tax rebate as a rental income. It is true as well, that in the case of the traditional rental the owner can get a rebate of 60% -just if his property is his current home and not an investment- and however the vacation house does not have that deduction. Also, Treasury has put the focus on these collaboration platforms like Airbnb, Home Away, Miuba or Tripping, because of their lack of transparency -as it happens with all businesses that has developed through the internet-, which has increased the tax fraud in this industry. In year 2017 Treasury stated that 21.500 people were offering their properties for this purpose through those platforms.
Furthermore, the hospitality lobbyists in Spain is pressuring the government to put more control over this kind of houses, and they are becoming more similar to the rest of the industry, both in taxation and in characteristics of the properties. In fact, in the following months, it is expected that the law will change, so it is important to be prudent by the time to make new investments in this type of projects; because it is well known for everybody in this country, the legal insecurity that generates these emerging businesses. It already happened with the industry of energy saving and efficiency -only for using a well-known example and relatively recent-, in which after a legal change, was a very profitable business, and it ended up not being.
As a conclusion, we can say that effectively there are great opportunities in this new rental model, but as in any other business, it has risks. Also, that is necessary to make a study of the demand and occupancy level in the different areas, because without doubts, it will affect the profitability of the operation. And for last, reviewing the current law about the legal requirements for refurbishment and maintenance of the houses, as well as its taxation.