Better To Rent Out Long or Short Term?

Determining the Optimal Tenant Agreement for Landlords in Spain

For property owners in Spain who don't reside in their owned properties, the decision of whether to opt for temporary or long-term tenancy arrangements holds significance. The choice is influenced by personal usage considerations and the distinct legal and tax frameworks associated with each option.

Long-Term Contracts:

Under the Urban Leasing Law (LAU), long-term rentals aim to provide stable housing solutions for families. Annual rent adjustments are feasible, often limited by a set percentage, such as the current three percent cap for 2024. Long-term contracts typically extend for a minimum of five years, yet tenants can terminate after six months with a 30-day notice. Should landlords require the property for personal use, they must wait a year into the contract and then provide a two-month eviction notice. In case of property sale, tenants possess the right to remain for up to three months or until the property is sold.

Temporary Contracts:

Temporary rentals fall under the classification of “rental for use other than housing” by law. These contracts must span at least 32 days to avoid categorization as tourist rentals, subject to distinct regulations and often requiring a tourist license. Duration cannot exceed 11 months, beyond which it transitions into a long-term rental necessitating a different contract format. Temporary rents tend to be higher due to factors like furnished accommodations, inclusive utilities, and peak-season demand. However, frequent turnovers in temporary rentals entail higher management involvement and slightly elevated risk for landlords.

Tax Implications:

Tax obligations differ based on the rental type. For long-term contracts, taxes are levied on net income after deducting various expenses. These deductions include waste collection fees, property tax (IBI), insurance costs, mortgage interest, and others. Temporary rental income is also taxed on net earnings, yet without the 60 percent bonus applied to long-term contracts. Non-resident landlords must comply with specific tax regulations, including quarterly tax filings for temporary rentals.

Conclusion:

The choice between temporary and long-term contracts hinges on individual circumstances and preferences. Long-term leases offer stability and potential tax benefits, whereas temporary rentals provide higher earnings at the expense of increased taxation and management involvement. Ultimately, landlords should weigh these factors to determine the most suitable arrangement for their property investment goals.

Here at SGM Abogados we will take care of all your tax responsibilities and answer any questions you may have.