Most of my clients, and in general most foreign investors, buy in Barcelona to achieve the double objective of having a holiday home/second residence/future retirement home, and having an additional income.
Barcelona has an enormous appeal, it attracts visitors from all over the world, and it offers the unique opportunity of acquiring a property at an affordable price, and earning money on both the rental of the same property and a possible future resale, now that prices are increasing.
Also, unlike what happens on the Coasts, in Barcelona it is possible to rent out a property all year long, and not only during the Summer months.
But what are the possible ways to rent the property out, how do they work, and what are the advantages and disadvantages of each?
Essentially, the three possible ways to rent out a property are:
- Tourist rental
- Medium-term rental
- Long-term rental.
Let’s look at each option in detail.
Tourist rental has been the subject of my previous post, entirely dedicated to the current situation of this form of letting and to its real costs.
Renting out to tourists means to rent out by night, just like a hotel.
To do tourist rental it is mandatory to have a tourist licence. It is not possible to get new tourist licences in Barcelona anymore, so the only option is to buy a property that already has a tourist licence. Renting out without a licence is subject to fines up to 90,000€. Tourist rental has been quite controversial in recent years.
The flat can be advertised on websites such as Airbnb. However, if you do not live in Barcelona, you will need an agency, who can take care of managing the rental business, doing the check-in/check-out, supporting the tenants, etc.
For this type of rent, the flat must be fully furnished and equipped, including wi-fi internet connection, bedlinen and towels.
Here are the advantages of the tourist rental:
It is possible to block the flat for personal usage in the system of the agency that manages it and use it for weekends or short stays;
The rent that can be asked per night, especially during the peak season, is proportionally higher compared to the other two forms of rental;
However, this form of rental presents serious disadvantages:
The flat may remain empty for long periods of time, not only because of low tourist season but also because there is very high competition on this form of rental. The trade-off between lowering the price a lot and getting more bookings may not be worth it, considering the high prices that this form of rent entails;
The agencies that manage tourist rental flats, usually charge very high fees, from 30% to 45% of the rent;
The owner pays for the utilities (water, electricity, gas). This means that if the tourists go out in the morning and leave the air conditioning on all day, you (owner) pay for it;
The typical clients for this type of rent are usually young tourists and they may not take very good care of the flat, especially considering that they only spend a few nights in it, and that it is meant as a cheaper option than hotel rooms, with less control;
The deposit for a stay is usually of a few hundreds of Euros (300€ – 400€). It may not be enough to cover possible damages to the flat.
There have been a lot of issues related to tourist rental in Barcelona over the past few years. Many buildings are against it, just because the tourists often behave in a non-respectful way and disturb the neighbours. Therefore, it may happen that even if you have a tourist licence, the building may have forbidden tourist rental as part of the rules of the community of owners. They cannot prevent you from doing it – if you have a licence – but the situation can become extremely unpleasant, so check if the building has any rule about this form of rental before buying a flat with tourist licence;
The general costs associated to tourist rental (between the utilities and the agency fees) are very high. Even if you think that it is the most profitable form of rental because you can rent out by night, when you look at the actual numbers it may become much less interesting. Please check my post about the real costs of tourist rental.
Additionally to the management costs of this form or rental, just because it is not possible to get any new tourist licence in Barcelona, the price of properties with tourist licences are quite high. You end up paying a lot only for the licence to the point that it could take you several years of rental to recover this cost.
It means renting out a property between 3 and 11 months. From 12 months, it becomes long-term.
It is an extremely popular form of rental in Barcelona, there is a huge demand for it and the flat is never empty. Before a tenant moves out, a good agency has already found a new tenant, so do not make the mistake of thinking that the flat remains empty for months. On the contrary, the demand for this form of rental is higher than the offer.
NOTE: This is the form of rental that we offer to our clients, so I know it very well. Everything I say in this section is based on my direct experience with our rentals. We have been renting out flats this way for years, by working with a specialised partner, an agency we have selected amongst many in Barcelona, for their professionalism and quality of service.
Like with tourist rental, the flats must be fully furnished and equipped, with internet connection, TV, washing machine. However, there is no need to put towels and bedlinen: the tenants use their own.
Medium-term rental has several advantages:
The profile of the tenants is mostly higher grade students and young professionals, who need to spend time in Barcelona for either work or study. Also, people who are refurbishing their own property and need a place to stay in the meantime, or people who are looking for a property in Barcelona and decide to spend some time living in the city before or while buying. In general, it is a “safer” profile than young tourists, and the fact that the people spend months in the flat usually implies that they are going to take good care of it.
Medium-term rental does not require any licence. it is perfectly legal, and can be done without any previous authorisation nor administrative paperwork.
Compared to long-term rental, it is possible to ask for considerably more money. If – for example – a 2 bedroom flat in the centre could be rented out long-term for around 900€, the medium-term rent is between 1200€ and 1300€.
If you finance the purchase of a flat with a mortgage, usually the rent you get from this form of rental is high enough to cover the monthly payments entirely.
The agency selects the tenants strictly, asking for proof of income, salary payslips, or salary of the parents (for students) etc. Additionally, the deposit is usually 2 months, which can cover not only any possible damages to the flat, but also part of the rent, in case the tenant has problems paying. I must say that, in over 3 years, I have never seen a case of medium-term tenant not paying the rent. Additionally, it is possible to take an insurance that intervenes if the tenant stops paying the rent. None of our clients has done this, and they never had any problems, but it is good to know that there is this opportunity.
The fee paid to the agency is much lower than the one for tourist rental. Usually it is around 15% – 20%. We have a deal with our partner agency, for our clients, to pay only 10%. The fee covers the advertisement of the flat, selection of the tenants, check-in and check-out of the tenants, inventory, administration of the rent and the utilities, support for any request by the tenants, and more.
The tenants pay for the utilities (water, electricity, and gas). Every month, they transfer some money on top of the rent and at the end of the tenancy the difference in the actual consumption is sorted out by deducting the money from the deposit. This is a very important difference with tourist rental. Usually, the internet connection is offered by the owner.
This form of rental presents a couple of disadvantages:
It is not possible to book the flat for personal usage for a weekend, like with tourist rental. If the owners want to use it themselves for some time, they have to inform the agency that will not advertise that period of time as available. However, be careful that this can turn into a possible loss of rental opportunities. You may miss a long tenancy of 10 or 11 months, only because you want to use your flat for one month.
For this type of rental, the properties must be in good areas. It works at its best in all Ciutat Vella, Eixample, Poble Sec, all the areas by the sea (Villa Olimpica, Poble Nou, Diagonal Mar), the area around Glories, the lower part of Gracia, essentially, in the areas where foreign investors buy anyway, even if it is for a future resale or for personal use. However, it means that you will have to invest more initially, if you intend to do this form or rental. It is still less than what you would need to pay for a property with a tourist rental licence (that must be in the same areas to work well).
Finally, long-term rental means renting out for minimum one year. the usual contract is 3 years.
It is the classic type of rental, and the tenants are people who live in the city permanently or for several years, and do not want to own a place or cannot afford one.
The profile of the tenants changes according to the areas of the city, going from professionals and families in the centre (Eixample, Villa Olimpica, Diagonal Mar, etc.), to lower class people who can only afford lower rent or who share the flat with more people in the suburbs of Barcelona.
Real estate agencies advertise this form of rent. The fee that they ask the owner is usually one month of rent.
This this form of rent presents a few advantages:
The flat is rented out for minimum 3 years.
It is the ideal form of rent if you own a very high level flat either in the Eixample, or Sant Gervasi, or other upper class parts of the city. You can ask for a high rent, and you can find good tenants able to pay for it.
The flat can be offered unfurnished, so you save on the money of the furniture and equipment.
The flat can be in any area of Barcelona. However, be aware that the rent you get is of course proportional. If you buy a 120,000€ flat in a suburb of Barcelona, do not expect to be able to rent it out for more than 400€ per month (or less!). And do not expect to be able to rent it out with any other form than long-term rental.
The tenants pay for the utilities and they put them in their own name.
However, there are some disadvantages:
The rent that is possible to ask is considerably lower than medium-term rental, unless with are talking about very expensive flats.
In Spain, the tenant is very protected. If, for any reasons, your tenants stop paying the rent, you’ll have to start a legal procedure to evict them and it will take several months and high legal costs. Additionally, when you are in this situation, you don’t know in which state they are going to leave the flat.
If is impossible to use the flat yourself with this form of rental. You can negotiate with the tenant to leave the flat only if you decide to resell it or to live in it permanently, and even so it may be hard to convince them to accept.
You have to take care of the flat (and of the tenants) yourself or pass it to a building administrator, who will charge you for that. Usually, the level of service they provide is less comprehensive than the one provided by rental agencies specialised in either short- or medium-term rental. Often they do not speak English, they are not good in communicating, and not very responsive.
If you want to change the conditions of the rent, you have to wait for a long time. With medium-term rental, you can do it every few months.
If the tenants stop paying for the utilities, the supply in your flat with be cut and it is quite costly and long to sort that out.
To sum up, every form of rental has its advantages and disadvantages. if you do not buy a flat with tourist licence, the choice is only between medium- and long-term rental.
Between the two, I definitely recommend medium-term, because of the better yield (you can ask for more, for the same flat); the much lower risk (tenants do not stop paying, and if they do, it is much easier to get rid of them); and for the much easier management (you give the keys to the agency, and forget about the flat).
This is what all my clients do, and I sum up here our offer to take care of this for you.
Preparation of the flat
- We take care of furnishing and decorating the flat for you (Ikea furniture is ideal). The nicer the flat looks, the more you can rent it out for.
- We install the wi-fi internet connection for you and test that it works well
- We take care of purchasing all the electronic devices for you (TV, microwave oven, washing machine). As we buy a lot from the same shop, we always get good offers (discounts, or extended warranties).
- We take care of anything else the flat needs (painting, small repairs, etc.)
Once the flat is ready, we pass it to our partner rental agency. First we visit it together to assess how much it is possible to ask as a monthly rent. From then on, the relationship is between you (owner) and the rental agency. You will sign a contract with them, and they will keep you informed about the rent.
Their fee is 10% and it includes the full management of the rental of the flat.
They are extremely good and professional. I have seen them renting out properties in 2 hours. They have excellent connections with foreign universities and companies (especially in France). They rent very fast, and very well.
Do not hesitate to ask us for any more information you might need! We are at your disposal to help you get the best return on your investment.