The increased profitability of real estate for tourist rental in Spain

by Lorraine Williamson
return on rent
ASSSA

SAN FULGENCIO – The idea of combining real estate investment with the thriving tourism sector has become increasingly popular in Spain. Recent research shows that holiday rentals again offer a higher return than long-term rentals. 

While long-term rentals provide stable monthly income, investors who rent out their property to tourists receive their income during a specific period of the year. However, the price tag for vacation rentals is usually much higher. As a result, on balance, there is often more to earn from renting to holidaymakers. 

At the moment, the context for holiday rentals is also favourable. Tourism seems to have fully recovered after the pandemic. Nights in tourist accommodation increased by 23.7% in 2022, according to data from INE. Also tourists spent 71% more, with an average daily spending of €148 euros. The gross value added of the sector in Spain amounts to €159 billion. That is an increase of 1.4% compared to 2019. 

“We are in an excellent context for private investors to decide on holiday investments, especially on the coast, where tourist rental income has grown faster than prices,” says Borja Badiola, general manager of Suomma in Inmodiario.com. 

Net return of 7% 

The rental of holiday homes yields a net return of 7%. This applies to houses on the Costa del Sol and the Costa Blanca. Furthermore, the average investment there is around €200,000 for a house of 128 m2 with three bedrooms. 

According to an algorithm developed by the Prop-Tech platform Suomma, the owner can generate a net profit of €15,906 annually from holiday rentals. Furthermore, the algorithm analysed more than 30,000 coastal properties with an average price per square metre of €1,679. 

Consisting of various elements, this investment tool provides accurate asset valuation based on the following;

  • property price
  • nightly rates and occupancy rate
  • seasonal revenue
  • cost analysis
  • financing and income statement
  • various investment scenarios

Profitability of real estate up by 150% 

In turn, the rental platform GuestReady states that tourist rentals increase real estate profitability by as much as 150% compared to traditional rentals. Commitment to technology, attention to detail, making guests feel at home and customer service are some of the several factors that increase vacation rental profitability. 

Good idea, buying real estate as an investment 

Based on the above, buying real estate as an investment certainly seems like a good idea. By renting to tourists at times when you cannot enjoy a holiday in your own holiday home in Spain, you can still get a return on your assets. However, pay close attention to whether the purchase price of the home you have in mind is also the market price. There are all kinds of tools for this. 

Limit the risks 

Just like investing in the stock market, investing in bricks and mortar also involves risks. It is therefore important to contain them as much as possible. Also about any future income from rental with which you can recoup the costs. Therefore, the easiest way to avoid problems when buying a house in Spain is to contact a reliable expert who knows the market and has enough experience in the region of your interest.   

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