Even if less frequently than a couple of years ago, still several clients contact me to “look for a property for tourist rental”.
The tourist rental business has been under the spotlight for several years now and it is a controversial form of letting the flat, definitely not as good as it might seem to investors looking for an easy and – according to the “legend” – considerable income.
But let’s start with the definition of “tourist rental”.
It is considered tourist rental the letting of a property from 1 to 31 nights.
The flats are advertised on websites such as Airbnb, and prices per night vary according to the areas, the season, and the type of flat.
To be eligible for this form of rental, the flat must be fully furnished and equipped, including with bedlinen and towels, just like a hotel room.
To be able to rent out to tourist, it is mandatory to have a tourist licence.
Up to 2014, it was possible to easily get one from the council although in the district of Ciutat Vella, it was already forbidden to get new licences.
In the Spring of 2014, from one day to the next, the council decided to stop issuing new licences and now it is impossible to get one everywhere in Barcelona. The only option to do tourist rental, is to buy a flat that already has a valid licence.
Let’s look, first of all, at how tourist rental is conducted in its legal form.
Tourist rental (also known as short-term rental) is a business and, as such, it is subject to regular taxation. The owner of a flat with tourist licence must do a tax declaration every quarter, whether they are resident in Spain or not.
While residents can decide to take care of the check-in and check-out of the tourists themselves, non-residents always have to rely on a local agency specialised in this type of rent.
There are plenty of agencies in Barcelona, who accept to work the flat and take care of advertising it, doing the check-in and check-out, being at disposal of the tourists 24-hours a day, being available for urgent repairs or other needs, collecting the money, checking the flats after each rent, doing the inventory, etc. There is a lot of work involved in this business.
What was happening in Barcelona, is that many flat owners (mostly local residents) were doing tourist rental without declaring their income (so without paying taxes) and very often even without a licence!
This is one of the reasons why the council decided to stop issuing new licences and to start severe controls.
The other reason is the pressure the council received from the hotels.
Barcelona is a city that lives on tourism. The quality of its hotels is very high, and hotel owners incur in very high costs to maintain it. They cannot deal with the competition of very cheap tourist rental flats rented out without any form of control, warranty, and price regulation.
The problems that tourist rental brings
There are some problems related to tourist rental that people do not think about when they look for a flat with tourist licence.
1. It attracts very cheap tourism to the city (and the flats!)
The majority of clients for tourist rental are very young people who occupy a flat in groups of 4, 6 or more. As it is much cheaper than going to a hotel, it opens the door to a kind of tourism that Barcelona has complained about for years, that does not bring any benefit to the city and often only creates behavioural problems.
2. Often tourists do not take care of the flat
It happens many times to owners of tourist rental flats to suffer damages in their property. Unfortunately, someone who spends 2 or 3 nights in a flat often does not worry about its state. Regrettably, I believe we all have experience with the general lack of respect in our current society… it is not different for tourist rental. You can be lucky some times, but if your flat is often rented out you can be sure that you will sooner or later have guests that leave the flat damaged and very dirty. Then you enter all the process of claiming the damages from the 200€ or so the tourist paid as a deposit, and good luck with the whole issue…. Chose a good agency to take care of your flat!
3. The competition is very hard, so you have to keep prices low
Barcelona is full of tourist rental flats, legal or illegal. Even if the council is fighting to regulate the situation, there are still many flats rented out without licence. People who are not paying taxes on their tourist rental income, can afford lower prices to ensure a higher occupation rate.
Out of the peak seasons, the risk is that the flat stays empty for weeks unless it is offered at a very low price, which makes the whole operation not worth at all considering the high costs involved (see below).
4. There can be problems with the community of owners
Even if you have a regular licence, you can incur in problems with the community of owners of your building.
Tourists come here to enjoy the Barcelona nightlife, they go back home in the middle of the night, often still partying in the communal areas of the building and disturbing all the neighbours
I lived in the Borne for one year. In my building there were 8 flats, of which 4 were rented out to tourists. I remember screaming youngsters coming back at 3 o’clock at night and going to party on the communal terrace until one of the neighbours went to tell them to be quiet because residents had to work in the morning….
As a consequence, several buildings have forbidden tourist rental as part of the rules of the community. This creates a very difficult situation because on one side the owner of the flat has a licence and is entitled to rent out his/her flat but on the other side the neighbours ban it. This leads to a lot of conflicts, which is really something you do not want to get involved in because it can become really unpleasant.
The costs involved in tourist rental
Another important aspect that people who are fascinated by the “myth” of tourist rental ignore, is that this business involves very high costs.
I am not talking about residents who run the business illegally and do not pay taxes. The do make money, until they are caught by the financial authorities (and I know people who have been caught) and will have to pay fines.
I assume that, if you are reading my blog, you are an international investor interested in having an income source from a good rental in Barcelona, which is something I definitely recommend, and that most of my clients do (but not with tourist rental). If this is the case, here is what you have to pay for your tourist rental business:
In tourist rental, the guest pays a certain amount per night (let’s say 100€), which includes everything. The only additional cost is the cleaning, which is charged extra to the tourists.
The utilities are paid by the owner of the flat. So, to say it clearly, if the tourists go out all day and leave the air conditioning on to find a fresh temperature when they come back at night, the owner pays for it.
The electricity bill at the end of the month can therefore be very high.
There are ways to limit the usage of the air conditioning, by installing a system that switches off the a/c automatically after some time. However, if as a result you make your guests angry and they write a bad review about your flat, you also end up losing business!
2. Agency fee
If you do not live in Barcelona, you must rely on an agency who takes full care of the tourist rental business for you.
These agencies usually charge between 30% (very few) and 45% of the rent.
It is true that it involves a lot of work and the need to be at disposal 24 hours a day. But it is also a lot of money that you are not getting at the end of the day.
If you are a non-resident in Barcelona, you pay a fixed income tax of 24% (although there is a discounted rate of 19% from 2016 only for members of the EU Community). This means that every quarter you have to pay 24% taxes on the income you get from your tourist rental business.
So… What is left in the end…?
Let’s make a rough calculation:
- Let’s talk about a flat that can accommodate two people, in the historical city centre. Let’s consider an average fare of 120€ per night and let’s assume that you are lucky and manage to have an occupation rate of 80%
- Your annual gross income is: 120€ x 292 (=365 days x 80%) = 35,040 €
- Part of this goes to the agency that is managing the flat, let’s consider a fee of 35%: agency fee = 12,264€
- You have pay the utilities: let’s consider around 45€ per month of internet connection and around 150€ per month of electricity. Total utilities: 2,340€, and I am not counting the water or the communal charges of the building.
- Then let’s count the taxes that you have to pay on your gross income: 35,040 € x 24% = 8,410 €
In the end, what is left of your annual income is 12,026 €.
Still interesting, but I have made assumptions of a high daily rent (check Airbnb, there are flats offered for 60€ per night) and a high occupation rate.
This is a rough calculation but I hope it is enough to show you what a realistic income for tourist rental can be.
And finally, the controls and fines
As long as tourist rental was concentrated in the district of Ciutat Vella, which is all the time invaded by tourists and with very few local residents, nothing major happened.
Residents were complaining, especially in Barceloneta, but they were pretty much ignored.
When the tourist rental business expanded to the Modernist buildings in the Eixample and its posh residents, the council had to start listening to people’s complaints.
Because of this, and the huge amount of illegal rentals, the council finally decided to intervene.
They created a dedicated department who started to check all the flats advertised on Airbnb. They even checked flats that were undergoing renovation to make sure that the owners were not preparing the flats for tourist rentals (we had a couple of controls during renovations, and helped our clients avoiding fines that – in the absence of any answer – were automatic).
The result is that many owners who were renting out flats without a licence were fined up to 60,000€. They were also fined for not paying taxes, and even Airbnb got fined for going against the local legislation and accepting to advertise properties without the required licence.
All the residents in Barcelona received a letter from the council asking to help report illegal tourist rentals. The letter invited neighbours, who suspected that someone in the building was doing tourist rental, to call a dedicated number and inform the council that proceeded to check if the owner had a licence or not.
They are still checking a lot, and they are still fining a lot. It will not stop soon.
Finally: is it worth it?
Tourist rental is one of the possible forms or rentals in Barcelona that ensures an income to investors.
In some cases it works better than in others, for example when the flat is in exceptional location or for some forms of “luxury tourist rental“, in which the owner decides to invest more in treating the guests.
Remember also that, now, a property with tourist licence is much more expensive because owners charge a lot for the licence as it is not possible to get new ones. When you have to pay additional 50,000€ to 90,000€ only because the flat has a licence, consider how many years you have to rent out your flat for, only to recover this additional cost!
There is another form of rental that works much better, involves much lower costs and risks, and ensures a similar or even higher income. It is medium-term rental, and it is what all of my clients interested in rental do, with excellent results.
But I will talk about it in another blog.