Buyers' Option for Rental Income

My most recent blogs, here and here, covered issues revolving around tourist numbers in hotspots around the world. In this post I’m thinking about what the implications might be for property buyers in Spain in the future because  make no mistake, the restrictions and outright bans on tourist accommodation are only just beginning.  And it’s all because what started out as a neat idea to put homeowners with spare capacity in their homes in touch with budget-conscious travellers looking for short-term accommodation morphed into a monster that is ruining lives. However, there are a couple of options I can suggest for those who might still like a bit of income to cover running costs.

First of all, it’s important to note that the majority of second home owners, irrespective of whether they are Spaniards or foreigners, do not rent out their properties at all and many of those who do didn’t start out with the intention of doing so. It wasn’t the main motive for the purchase and they became accidental landlords once they saw the potential to cover running costs if they did rent when not in residence. However, it’s now becoming clear that the situation is likely to change for this type of owner as well as the buy-to-let investor and I predict a lot of Communities of Owners are going to have a tourist rental ban listed on the agenda of the next AGM.  A 60% vote in favour of a ban wins. 

I’ve just started a conversation with buyers who are checking out various locations in Spain with a view to buying now for permanent residence at some point in the future but, in the meantime, renting the property when not using it themselves. Aware of the changes already made and those in the pipeline I have started to think about the advice I give in light what we know now and what might be ahead.

The first question I will always ask now if rental income is mentioned is if not being able to rent is a deal-breaker. In my experience it won’t be. In over 20 years of running The Property Finders I have worked for buyers whose primary motive for purchase was rental income on only a handful of occasions. And even in those cases, the ultimate goal was to spend all or most of the year in Spain in the future but it made sense to get onto the property ladder ahead of time. Typically, this type of buyer will be living and working outside of Europe but planning to retire in Spain in 10 - 15 years time or just super-busy with few opportunities to visit until they retire. 

One solution for this type of buyer will be to consider long-term rentals and indeed, one of the buy-to-let clients mentioned above is already doing that very successfully. If you rent to the same person for a minimum two month period it is not considered a tourist let and falls under Spain’s standard rental contract, no licence needed. And such is the demand for high-quality, long-term rental property in prime locations I can see already that the gross yield difference between long term and tourist lets is narrowing. Previously, I estimated a 2% - 3% lower yield from a long term let but for the right property in the right location, when lower running costs are taken into account, there may be little or no difference. I know of a recent case in which a €345,000 investment in a two bedroom, two bathroom apartment is producing 6.8% gross yield for a 12-month let. I would have said 7% was the maximum achievable for the same property on a short term basis so, with the tenant paying utilities and lower management costs, the owner is probably better off.

However, renting long-term doesn’t necessarily mean getting no use of the property at all and I’ve seen several cases over the years whereby there is a break in the tenancy in the summer months. This appeals particularly to long-term tenants who definitely don’t want to be in Spain during the hottest months and are happy to vacate for 8 - 12 weeks and spend time in the home country, returning in September.  I know of tenancies that have continued for years under these terms.

I think owners of apartments and townhouses in complexes are the most likely to face restrictions in the future, mainly because noisy tenants have more impact on more people. A Community of Owners can act independently of town halls simply by forcing a vote on the matter. However, it’s not necessarily straightforward. On August 6th a beachside complex in San Pedro de Alcántara held its AGM with a tourist rental ban as the last item on the agenda.  It didn’t pass, mainly due to the the community’s lawyer stating it should be dealt with at an EGM. In addition, his advice was to wait, pending further restrictions in the pipeline yet to be announced. Having said that, former clients of The Property Finders have a townhouse in a development near Puerto  Banús where a ban has been introduced by the Community and they have been ordered to take down their listing on the internet immediately. 

So while there are changes ahead for second home owners in many areas it won’t particularly matter for the majority. However, it is obvious that the party is over for the buy-for-tourist-rental investor, particularly in the city centres of Madrid, Barcelona, Valencia, Málaga, and Cádiz to name just a few. For example, at the end of July, Málaga Town Hall announced that 85% of the 800+ tourist rental licence applications made since February 2024 had been rejected under the new rule that there must be an independent front door. Of course, how good enforcement will be is another matter altogether. To date, it hasn’t been great and is one of the reasons that people are so angry.  Several cities, particularly Madrid and Barcelona, have had restrictions in place for years but lack of oversight has contributed to the feeling that nobody was listening, leading to protests.

In my view, partying tourists and residents, both permanent and second home owners, generally don’t mix too well. Much better that groups of tourists whose main purpose is to make a lot of noise, party into the night, sleep and repeat, really should be in hotels who are much better placed to control behaviour, that’s where they were prior to the rise of online portals.

Lots more blogs on various topics affecting buyers in the Spanish property can be found here.

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