Do you need to find a property to profit from through vacation rentals? At Licencia Vacacional, we help you find and acquire properties eligible for a touristic license.
The Valencian Community is one of the most tourist-friendly regions in Spain. Its incredible beaches, climate, culture, and Mediterranean cuisine attract millions of tourists throughout the year.
In the last decade, the exponential growth of vacation rentals has added a new dimension to the tourism sector, challenging and competing with traditional hotel accommodations.
This development has had very positive effects on both tourism quality and at the macroeconomic and microeconomic levels.
However, in recent years, the sector has encountered some challenges, such as:
- Unregulated and excessive growth not controlled by the government
- Hotel lobbies attacking vacation rentals.
- Neighboring communities and neighborhoods unhappy with vacation rentals.
- Studies conclude that vacation rentals contribute to rising housing and traditional rental prices.
All of this has led governments to heavily restrict vacation rentals, especially in large cities.
An example in the Valencian Community would be the cities of Alicante and Valencia, where, as a general rule, licenses are only granted for ground-floor properties.
Currently, in medium and small cities, there are fewer legal restrictions on operating vacation rentals.
Despite these obstacles, vacation rentals continue to grow at an unstoppable rate. This is mainly because they generate a significant amount of revenue in Spain, and there is already an established market.
Is It Profitable to Own a Vacation Property?
One of the most appealing aspects of investing in vacation rental properties is their profitability.
In fact, as a general rule, vacation rentals tend to have higher profitability than traditional rentals, but this will depend on factors such as:
- If you are buying the property, factors like location, competition, loans, down payment, community fees, etc., will significantly impact profitability.
- Consider and deduct the money and time it will take to prepare and legalize the property (renovations, tourist license, etc.).
- Taxes.
- Management, depending on whether you will handle it yourself or outsource it.
- The average occupancy rate you can achieve.
- Seasonality.
- Average daily rate (ADR).
- Bad luck (for example, regulatory changes, issues with squatters, or neighbors opposed to vacation rentals. In short, many factors could affect your profitability).
Because of all these factors and to minimize risks, it is advisable to conduct thorough research on as many variables as possible. It is also highly recommended to hire specialists who can assist you, such as:
A personal shopper or real estate agent to help you make a good purchase.
- Technical advisors to ensure the possibility of legalizing the property (not all properties can obtain a tourist license).
- A tax or legal advisor to guide you through tax matters.
- A vacation rental management company to handle the rental process and resolve any issues with the property.
In terms of volume in the Valencian Community, we have:
Alicante: 32,491 tourist licenses issued between 2019-2023.
Valencia: 6,904 tourist licenses issued between 2019-2023.
Castellón: 5,524 tourist licenses issued between 2019-2023.One of the most important aspects reflected in the graph is the number of vacation rentals available in Alicante. Additionally, it is noteworthy to mention the rapid recovery from COVID-19, with the growth trend for 2024 looking very promising.
How much can you earn from vacation property
On some occasions, you can earn as much as a salary, but it depends on the property, demand, and the expenses you have associated.
Simply put, to calculate income, you need to consider:
- Average Daily Rate (ADR).
- Booked nights.
Estimating expenses is a bit more complicated, as they vary depending on the following factors:
- Mortgage and down payment.
- Renovations.
- Furniture.
- Legalization of the property (tourist license).
- Vacation rental management company.
- Utilities (electricity, water, gas, internet).
- Taxes (income tax, IRPF).
- Maintenance (boiler, light bulbs, etc.).
- Replacements and supplies (key sets, towels, garbage bags, toilet brush, etc.).
- Home insurance.
- Security installation (sensors, cameras, etc.).
- Cleaning.
- Commissions from tourism platforms (Airbnb, etc.).
Profitability can vary greatly if the property is already paid off. Another variable to consider is whether a vacation rental management company is needed.
In summary, and being realistic, if you have to pay a mortgage and hire a management company, profitability usually ranges from 8% to 15%.
Cost of a touristic license
If you’re wondering how much it costs to legalize a property for vacation rental, that is, to obtain a tourist license, the price usually ranges from €300 to €600, depending on the municipality.
Additionally, with the new regulations in 2024, the cost of licenses has increased, and in some cases, it can exceed €1,000.
Cost of a vacation rental management company
On the other hand, if you want to delegate the management, they typically charge between 15% and 30% of your earnings.
Profitability of buying a commercial property for holyday rental properties
It is worth noting that, as a general rule, buying a commercial property and converting it into a tourist accommodation is more profitable than purchasing a residential property directly.
However, this also involves a higher level of risk.
Is it worth investing in vacation rentals
Do you have doubts about whether it’s worth it? Below, we will outline the advantages and disadvantages of owning a tourist accommodation.
The approach we will take is from the perspective of an investor who is deciding between investing in a tourist property or another type of real estate investment.
Advantages of investing in vacation rental license
- Higher profitability and increased income.
- You can use your property whenever you want.
- You’re investing in another sector. You’re not just investing in real estate but also in tourism, meaning the service you offer and the focus is on guests who are there to spend their vacations.
- By investing in another sector, you’re diversifying your risks to a greater extent.
- You have the opportunity to offer more services, such as dining, experiences, daily cleaning, and more.
- You have more control over the property. In other types of rentals, the property is essentially “owned” by the tenant for a certain period. Here, however, you maintain full control over your property.
- No long-term or medium-term commitment with the tenant or guest, meaning you avoid problems associated with bad tenants.
- There are specialized management companies that handle everything and offer security.
- The vacation rental market is growing, with more platforms, technology, demand, etc.
- You always have the option to switch to other types of rentals or sell the property.
- Properties with a tourist license and good profitability appreciate significantly in the market, in case you ever decide to sell it.
- It involves more taxes.
- It’s a sector currently viewed negatively by society.
- You must renew the license every 5 years.
Disadvantages of investing in vacation rental license
- There are times of the year when you will have lower demand.
- The regulations for legalizing properties are quite restrictive.
- You need to stay on top of things, and it involves more complex management.
- You may have more issues with neighbors than with other types of rentals due to the higher turnover of guests.
- It requires a larger investment in furniture.
- Higher maintenance costs, such as cleaning, replacements, etc.
- If you don’t take the necessary precautions, you may face problems with squatters.
Best locations to invest in holiday rentals
For a better analysis, here is the ranking of new tourist licenses in 2022 in the main cities of the Valencian Community:
- Torrevieja: 1,214 units (see more)
- Calpe: 612 units
- Jávea: 575 units
- Orihuela: 519 units
- Benidorm: 494 units (see more)
- Denia: 399 units
- Santa Pola: 380 units
- Gandía: 291 units
- Teulada: 271 units
- Oropesa del Mar: 263 units
- El Campello: 246 units
- Altea: 237 units
- Paterna: X units
- Peñíscola: 208 units
- Valencia: 196 units
- Alicante: 178 units (see more)
- Benissa: 165 units
- Finestrat: 121 units
- Alcossebre: 115 units
- Benitachell: 102 units
- Canet d’en Berenguer: 101 units
- Elche: 95 units
- Benicasim: 85 units
- Alfas del Pi: 80 units
- Castellón: 70 units
For example, Torrevieja issues many tourist licenses, but it experiences significant seasonalit.
On the other hand, Alicante has very few because obtaining them is challenging. This is largely due to the fact that they can only be issued for ground-floor units.
Another example is Elche, which, despite being the second-largest city in Alicante, only has beaches in a small part of its territory (La Marina, Alted, or Arenales). This results in fewer licenses, which does not mean it’s not a good area.
In conclusion, the above list provides an approximate idea of the places with the most supply. However, the key is to understand each city’s market and consider other factors such as:
- Occupancy rate
- Seasonality
- Price per night
- Regulations and restrictions
- Logistics
- Investment budget
- Property purchase price
- Opportunities
- Growth potential
- Personal preferences
- Other considerations.
How to invest in tourist housing and secure purchase?
If you are going to invest in tourist housing, it is advisable to follow these steps first:
Market research to buy an apartment for tourist rental
First of all, know the supply and demand of the area where you are going to invest, as well as the tourist market and the real estate purchase market.
These are some variables that we recommend you to check:
- Average purchase price of real estate.
- Occupancy rate of tourist housing.
- Price per night of tourist housing.
- Competition in the tourist housing market.
- Level of tourism growth in recent years.
Study of the profitability of a holyday home
Secondly, it is very important that you make your calculations making a profitability forecast according to the income and expenses that you estimate to have.
Study of regulations
This part is the most technical but it cannot be ignored, since there are restrictions that can prevent you from exercising the tourist rental activity and can ruin your investment.
To avoid this, the best thing to do is to talk to a specialist who will inform you of the regulations and restrictions in the selected area.
