If you find yourself owning an unused apartment in a bustling tourist area, the allure of lucrative short-term rentals might seem irresistible. However, before diving into this endeavor, it’s crucial to crunch the numbers and weigh the options carefully. Perhaps, opting for long-term residential rentals could prove to be more financially prudent.
Short-term rentals come with a higher price tag. Firstly, it’s essential to consider the elevated operational costs associated with short-term lets compared to long-term rentals. Here’s a breakdown of expenses to consider:
- Utilities: With short-term lets, you’ll be responsible for covering water, electricity, internet, and other utilities, whereas long-term tenants typically assume these costs.
- Cleaning Expenses: After each short-term rental, there’s a need for thorough cleaning, along with frequent minor repairs to maintain the apartment’s standards.
- Advertising Costs: You may incur expenses in advertising your short-term rental or pay commissions to letting agencies.
- Tax Implications: Short-term rentals often attract higher taxes compared to long-term leases.
Opting for long-term residential rentals offers tax advantages, allowing for up to a 60% reduction in declared taxable income on your annual personal income tax declaration (IRPF). Conversely, short-term rentals are taxed on the entire income received.
For individuals in higher tax brackets, such as those subject to a 45% tax rate on income exceeding €60,000, the tax burden can be significant. For every €1,000 of declared income from short-term rentals, you could end up paying €270 more in IRPF taxes.
Let’s delve into a case study to illustrate the financial implications:
Consider Margaret, who incurs annual operational costs of €4,000 for her apartment (including property tax, community fees, and insurance). If she opts for long-term rentals, she anticipates earning €12,000 annually.
However, if Margaret chooses short-term rentals, she foresees additional operational expenses of €3,000 per year (covering utilities and cleaning). Let’s analyze the financial breakdown:
Long-term rental: This yields an annual income of €8,000 (after deducting running costs). With a 60% reduction in taxable income for residential leases, Margaret only pays taxes on €3,800. Considering her top tax rate of 45%, her post-tax profit amounts to €6,724.
Short-term rental: To achieve an equivalent post-tax profit of €6,724, Margaret must account for additional fixed and running costs totaling €7,000. Additionally, she faces an extra €5,480 in taxes on the total income.
Thus, to match the profit from long-term rentals, Margaret would need a minimum income of €19,204 from short-term lets. This translates to renting the property for €370 per week, every week of the year.
Before delving into the world of tourism rentals in Andalusia, it’s essential to understand the intricacies involved. Don’t forget to register your rental with the authorities to avoid potential repercussions, as letting agencies and online property platforms are increasingly sharing information with tax authorities to ensure compliance.