Holiday, mid-term or residential letting: comparing your options
If you own a second property or want to invest in an apartment to generate additional income, you may be weighing up holiday letting against a conventional residential tenancy.
This article explains the differences between the options and the advantages each may offer so you can choose according to your circumstances and the characteristics of the property.
Differences between holiday and residential letting
Let us start with the definitions:
- Residential letting: meets the tenant’s housing needs under Spain’s Urban Leases Act (LAU). The current framework also covers temporary housing rentals where there is a justified, verifiable reason for relocation.
- Holiday letting: the letting of furnished, equipped accommodation subject to tourism-sector rules when it falls within the exclusion from the LAU. Review territorial regulations, actual use and the contract date; advertising on a platform is not enough to classify the rental.
With these two possibilities defined, here is a list of advantages that we at ALEHOST believe each model may offer.
Holiday letting:
Tourism demand varies by destination, season and property type. Before choosing this model, check whether the use is feasible and work with comparable, dated demand figures.
This type of letting can attract substantial visitor demand in capitals, major cities and coastal destinations. Compared with a conventional residential tenancy, holiday accommodation may offer these advantages:
- Higher guest turnover, with the potential for a high proportion of occupied nights if your property is in a destination with strong tourism occupancy.
- A nightly rate can exceed the daily equivalent of a monthly rent, but this does not imply a higher annual profit: deduct empty nights, commissions, utilities, cleaning, management and replacements.
- Personal use can be planned by blocking available dates while respecting confirmed bookings, contracts and applicable terms. It does not mean the property is immediately available at any time.
- Tourist accommodation has a different legal framework from a permanent residential tenancy. The duration and obligations must reflect the actual use, not the label chosen for the contract.
Conventional residential letting:
Despite the popularity and perceived returns of holiday lets, they also have drawbacks compared with conventional tenancies. Residential letting may offer these advantages:
- As holiday apartments have expanded, some capitals and cities have tightened the rules governing them.
- For Spanish personal income tax (IRPF), certain residential rental income may qualify for a reduction in positive net income, depending on the contract date and conditions. The 60% rate is not universal; holiday letting does not benefit from that housing-related reduction.
- Internet, electricity, water and similar costs are usually borne by the tenant, so expenses can be significantly lower even if the return is smaller.
- For permanent residential tenancies subject to the current rules, compulsory extensions can reach five years where the landlord is an individual and seven where it is a legal entity, with exceptions and further rules. Review the contract date and circumstances.
- Less day-to-day investment of time and money is required for guest service, coordinating cleaning, handling bookings, optimising prices and listings, and maintenance.
A management company can take on the agreed tasks and make oversight easier. The owner should understand which responsibilities remain theirs and which costs are deducted from income.
Having considered the advantages of each option, and their corresponding disadvantages, assess which is most suitable for your personal circumstances and the characteristics of your apartment or property.
Include mid-term letting in your comparison
Temporary housing responds to a real, verifiable reason for relocation, such as work or study; it is not defined solely by a number of months. Review the current LAU and the contract’s transitional rules. It must not be used to disguise a permanent residence or confused with tourist accommodation.
Compare a full year
For each model, calculate income received minus operating expenses, vacant periods, management, upkeep and tax. Treat financing and recovery of the investment separately. First rule out uses that are not feasible at the property’s location.
Sources: LAU and IRPF reductions for residential rental income.
