Rental housing has become one of the safest businesses, that already has been professionalized with the new technologies. Therefore, obtaining rental profitability today is a great opportunity in Real State in Madrid.
Before making the decision to adquire or rent a property in Madrid you must first ask yourself what degree of complexity you are willing to assume. Then, what means you do have to promote yourself and what type of client you want.
The same way it’s neccesary analyze the type of property you have, and what kind of services you want to provide. So, with this information you can easily identify the most suitable type of real estate rental for you.
Legal and fiscal framework
To understand the laws surrounding the different types of rental you have to read some of our posts. Summing up, it’s important to know about the taxation of each form of contract, clauses to protect the business and where the best customers are.
The three main types of property rental
There are three types of rental, each with its own contract and specific legal framework; residential rental, temporal rental and tourist rental.
Rent of “habitual residence” or residential rental
This is the most common contract when we talk about rental. It offers longer-term stability in exchange for a moderate return with more beneficial taxation, because 60% of the income are exempt from taxation.
Residential rental can make profits with a return of 4.5% according to the Bank of Spain. And this return is above other investments such as the returns obtained from treasury bonds.
Among the main drawbacks we can highlight possible non-payments, eviction time, legal costs of an eviction and the legal insecurity for the owner due to the protection granted to the tenant, because in general the law protects the tenant more than the owner.
Adittionally, the duration of the contracts is 5 and 7 years for companies with an increase maximum annual price of the inflation.
Temporal rental, also called “seasonal rental”
Called by law as “Leasing for use other than housing” and is perfectly suited to lessors who prefer to have back their home when the contract ends and adjust it annually to the market. It offers high profits, placing itself between the rent of habitual residence and the tourist one.
Properties leased under this modality show less wear and tear and entail less workload than tourist rentals.
The relationship between the parties is governed solely by the clauses specified in the contract that both parties accept by mutual agreement, thus being able to benefit from an increase in rent each year, as the market evolves.
Among its disadvantages, it does not benefit from the tax benefits that the habitual residence has, and the greater workload, but mainly that the clients are not found in any specific channel, which is precisely what DFLATMadrid highlights as we rental to international corporations.
It stands out as their advantages, the negligible rate of defaults and legal problems apart from the greater profitability in the long term even without having tax relief.
One of the main advantages of this modality lies in its freedom when making a contract and, above all, in its high profitability in exchange for greater risk.
Profitability can range from 5% up to 15% after deduction of management costs, which are very high, and can exceed 50% of the income obtained in a traditional contract. This type of rental depends on the demand of tourists. In some seasons or times of the year it is low and it depends very much on international situations such as international conflicts or Covid-19.
What type of rental is the most appropriate to make a home profitable?
Not all homes are suitable for all types of rental. It will depend on the location and type of housing; the profile of the investor, the desired return, the number of units or the estimated time of sale, among other factors. But it’s location the main variable that frequently defines the type of exploitation.
For example, if the asset is located in the center of Madrid, the best option could be tourist rental, but in the financial area it would be the temporary corporate rental and, if it is in a residential area then the regular lease for habitual residence.
The most profitable rent for tax purposes is the permanent residence, which is also the clearest and most well-known. As well it is an stable long-term operations with some tax relief.
However, permanent resicence does not offer the best rental prices and the owner may face higher risks with the tenants as they are very well protected by the law.
Seasonal contract or temporal contract is the least complicated, as it allows to work with different reliable client profiles and different terms o stays.
The disadvantage of seasonal contract is that involves more workload than “habitual residence” and lacks of fiscal advantages that are by far overcomed by its better prices and that the landlord is better protected by the law than a “permanent residence”.
When you go for the higher income, you go for tourist rental, that are adecuated only for properties well located; it also entails heavy workload and you need a license. The advantage is that many times it offers higher profits under normal market circumstances.
It is important to know that the treasury is increasing control over housing rental sector. They’ve hired more inspectors dedicated to require information from real estate companies. On the other hand, hoteliers are fighting against the illegal market for tourist housing.
Are you investor or owner interested in DFLAT Madrid?
If you have a flat or apartment for rent in Madrid , please consult our real estate advisors and take into consideration the seasonal rental, because probably that it will be the one that suits you better, obtaining the best profitability within the margins of the law.
One of the best options to improve profitability is to renovate the property adquired.
If you are foreigner visit our page for investors interested in Madrid and a Golden Visa.