Property rental
Dear Sir,
I read with interest your last article regarding property rental. I would be grateful if you could write one with the landlord’s point of view.
Answer
The idea of renting a property can be tempting for a conservative investor.
A touristic rental can be even more tempting against a residential rental (long term rental) due to the apparent attractive returns.
However, there are some aspects that should be taken into account to study if one is more attractive than the other in order to obtain the highest returns.
1.- For a short term rental, one has to consider the rules and legislation in force in your particular autonomous region. Due to rising rent prices, mainly in cities, the regional government have set some rules that have to be obeyed by the owners of these types of properties.
Special plans have been approved to regulate the licences required to rent this type of property.
In order to obtain the necessary licences, the property must fulfil certain requisites that the landlord has to complete before the application is made to obtain the licence. For example, if the property is an apartment, it is required to have the permission of the community of owners, or residents’ association.
2.- It is not the same renting a property in a rural setting to that in a town or a city. Depending on where the property is situated one may have higher probability of renting for a longer or shorter terms. There are studies that say that for a property to provide suitable income, it needs to be rented for 50% or 60% of the time.
3.- To rent a property using an agency, the agent will receive a commission. If the rental is done for residential purposes (long term), the commission is paid once. However, if you are thinking of renting to short periods of time, the commission will be due every time a new tenant arrives.
Sometimes, the agency will take care of the cleaning, provide sheets and towels etc, but this is not included in their commission and has to be paid separately.
For short term rentals, the landlord is usually liable to pay for the utilities, which doesnt´ happen with long term rentals.
4.- With a long term rental, the income that has to be declared is reduced by 60%.
This is in relation to the state tax, but there may be other regional deductions that could be between 15% and 30% to cover interest on loans etc. Repairs and maintenance are also deductibles as is any other cost that is necessary to incur to be able to rent the property, such as the local rates, insurance etc.
If the property is empty, it is considered to be a second home, and therefore has to be included in the income tax declarations.
In summary, it may appear that a higher income may be obtained by short rentals, but one has to consider the tax advantages or a long term rental, as it may be more attractive when all things are considered.
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This column is intended for informative purposes only and we strongly advise any readers to seek professional advice prior to taking any action.