Renting in Madrid has become one of the safest and most professional businesses thanks to new technologies.

Before making the decision to rent your property, you should consider several factors, such as your willingness to deal with the complexity, your resources to market the property and the type of client you want to attract. It is also important to consider tax obligations such as VAT, invoicing or hiring an agency.

In this article, we will explore the different rental types and how to achieve maximum profitability when renting a home in Madrid.

The 3 main rental types

There are three types of rental, each with its own specific contractual and legal framework: long-term or permanent housing, temporary rental and tourist rental.

In order to determine which type of rental is the most suitable for you, it is necessary to first determine what type of property you own and what services you are willing to offer.
In the same way, it is necessary to keep in mind that one of the most effective strategies to improve profitability is housing reform.

1. Long-term or permanent housing

This is the clearest and most recognized rental type, as well as the most tax efficient.
It offers greater long-term stability in exchange for moderate profitability or lower short-term returns.

Although it generates profits, with a pre-tax profitability of 4.5% according to the Bank of Spain, and has advantages such as the possibility of carrying out long-term operations and access to tax benefits such as the rental deduction in personal income tax, with an exemption of 60% of tax revenue, it also has risks.

Disadvantages include legal uncertainty for the owner due to the protection given to the tenant, the possibility of non-payment and illegal occupation, and the limitation of price increases.
On the other hand, contracts usually have a longer duration, between 3 years for natural persons and 7 years for legal entities or companies, with annual price increases limited to the CPI.

This type of rental is ideal for owners who are looking for a stable income and are willing to deal with possible legal and administrative complications.

2. Temporary rental

Known by law as a “rental for use other than housing “, temporary rental is perfect for landlords who want to reclaim their property at the end of the lease and adjust it annually to the market.
Although it is not the most cost effective, it offers greater security and higher rental rates.

It offers high benefits, between the rental of permanent housing and tourism.
Although properties rented in this way have less wear and tear and require less work than tourist rentals, they do not benefit from tax advantages (except for temporary corporate rental) and require more effort than renting a long-term or permanent housing.

Its advantages include its adaptability to different client profiles, a minimal default rate and legal problems, the possibility of increasing income annually, and greater long-term profitability, even without considering tax benefits.

Its main disadvantage is that potential tenants are not found in a specific channel. DFLAT Madrid stands out in this regard, as our clients include international corporations and business schools, among others.

This type of rental is ideal for those looking for greater profitability without the complications of tourist rentals.

3. Tourist rental

Tourist rental offers high profitability in exchange for greater risk and workload.
Income can vary significantly, from 5% to 15%, and in some cases can be 50% higher than the income from a traditional contract.

One of the main advantages of this modality is the contractual freedom.

Among its disadvantages is the dependence on tourist demand, which is low in some seasons or periods of the year, and on situations such as international conflicts or circumstances such as Covid-19.

Although lucrative, it involves intensive use of the property, which can wear it out quickly. It also involves potential complaints from neighbors, as well as high operating and management costs.
In addition, owners must comply with local regulations and obtain the necessary licenses to operate as a tourist rental, which can be an expensive and complex process.

This type of rental is ideal for owners who want to maximize their income and are willing to manage the operational requirements and comply with local regulations.

What rental type is the most appropriate to make a property profitable?

Each modality has specific requirements, the choice of the rental type will depend on factors such as the location and type of home, the profile of the investor and the desired profitability.

However, we offer in this article a general view of the profitability of renting a permanent housing vs. temporary.

Location is a key factor in this decision. For example, in the center of Madrid, a tourist rental might be the best option, while in the financial district, a corporate temporary rental might be more appropriate, and in residential areas, renting a permanent housing might be the optimal choice.

On the other hand, considering hiring professionals dedicated to Property Management may be the solution you need to make the best decision.
These professionals can help you manage your property, find suitable tenants, and ensure that all legal and tax obligations are met. They can also advise you on how to increase the profitability of your property through renovations and improvements.

Legal and fiscal framework of rental types

The legal and tax aspect of each rental types is crucial.
It is important to understand the laws that govern these contracts, as well as the tax implications.

Rental is a lucrative activity that requires compliance with tax obligations such as personal income tax, corporate income tax or VAT. Not recognizing it is deceiving the treasury and all those who contribute to the common well-being.
In addition, it is essential to know the necessary clauses to protect your investment and how to attract the best clients.

Conclusion

The most fiscally profitable rental is that of a permanent housing, although it offers limited short-term profitability and carries risks.
Temporary rentals are less complicated, more profitable and offer more security than tourist rentals.
Tourist rentals can generate the highest income if the home is well located, but also require more work and wear and tear on the property.

In addition, it is important to be aware of regulations and adapt to an ever-changing tax environment, as well as consider comprehensive housing reform to improve profitability.

Maximizing the profitability of renting your home in Madrid depends on choosing the right type of rental and managing the property efficiently. Each type of rental has its own advantages and disadvantages, and the right choice will depend on your specific objectives and circumstances.

 

Are you a property owner or investor in Madrid?

If you are considering renting your property in Madrid, contact DFLAT Madrid.
Our team of experts is ready to assist you and make sure you find the best option to make your investment profitable.

If you own an apartment in Madrid, we can help you manage your property. From finding suitable tenants to the daily management of the property, our team of professionals will take care of everything. We ensure that your property is always in the best condition and generates the maximum possible return.

If you are a property investor, we also offer a complete real estate consulting service.
Our real estate investor department can provide you with detailed information on the best investment opportunities in the city. We can help you find properties that meet your investment objectives, whether for temporary or long-term rental.

Don’t miss the opportunity to maximize your income by renting out your home in Madrid!