Congratulations on your new vacation home! Buying property in Spain is an exciting achievement and an excellent choice, not only for enjoying your own slice of paradise but also for creating a solid investment opportunity. By renting out your vacation home, you can generate cash flow and make the most of your property.
We had the luck to be working with a great real estate agent that helped us prepare for renting out our penthouse in Estepona. Over time I talked to a lot of people that didn't have such a smooth experience with their realtor. So, I decided to write this article to help you prepare in the best way possible to make some great money from your Spanish holiday rental.
5 tips to start making money from your Spanish airbnb
1) Make an investment case for the property
When we wanted to buy our first vacation home, we created an “investment case” to understand what the potential earnings over time could be. I actually created a bombastic Excel file to get an idea of wether or not the investment would make sense.I started by entering some key metrics, such as:
- Purchase price and any additional costs for the purchasing (such as taxes, notary, legal, permits)
- Monthly expenses I had to factor in, such as utilities, community fees, insurance, maintenance, taxes.
- Expenses on a per booking basis, such as commission paid to airbnb or booking.com, cleaning.
- Income tax; Spain has a 19% income tax for non-residents (from the EU) that you must pay on whatever you earn (revenues minus costs and investments)
Then, I did some research on airbnb and also had a look at the database of AirDNA (they track airbnb's, their availability and pricing) for the region I'm in (Estepona, Andalucía). That gave me these metrics:
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High, mid and low season months
- Average price per night for my type of property, per season
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Average occupancy per season
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Real estate value growth year over year for the past years (check out Idealista for this for example)
- Estimated valuation once the property was ready (we bought a new property that was yet to be built). It gave us a jump in home equity because buying when there is yet to be built is usually below what the market price in 2 years would be).
In the end, my "bombastic Excel" gave me some great graphs, information about annual income and insights on my earn back period (the time it takes to recover the initial investment with rental income received).
2) Create a rental-friendly setup that doesn't break the bank
Yeah, so.. here's where my wife and I may have overspent a bit. Our philosophy was that although improving the interior quality of furniture, equipment and everything will not necessarily increase the nightly rates a lot, they will increase the overall experience of our guests. And lucky for us, reviews are backing our thoughts here.
Just think about what you would like when you'd stay in an Airbnb. Comfy beds are a must, a nice seating area (inside and outside) also. But that OLED TV that costs twice as much as the same size QLED, doesn't make a difference. Better keep dat 1000,- in your pocket.
In the end, we setup the penthouse with a mix of items from IKEA, Kave Home, Casa and Maisons du Monde. Don't save money on stuff like curtains, nothing breathes luxury more than perfectly fitted curtains instead of your standard-size IKEA products.
If you're looking for some great features, consider doing some stuff yourself. In our case we wanted to have a couple of walls decorated with nice wallpaper. Apparently, people in Spain don't use wallpaper a lot. Hence, the quote we got to do this for us was extreme. So we actually bought some great wallpaper at home, traveled to Spain and did it ourselves.
Total wallpaper investment
Materials: 500 euro
Labor: 20+ coffee and some days
End result: Priceless
3) Set the right price for your holiday rental in your market
Finding the right price can be quite challenging when you try to do this yourself. Remember, you're new to the market and are probably a bit emotionally attached to some price point for your property.
Our pro tip would be to definitely outsource the listing and pricing of your property to a real estate management company. In our case, our realtor that sold us the property also has management services that take care of these things.
When you've just listed the property, it might make sense to give the first couple of renters some discounts just to get things going. I was actually a bit opposed to this idea at first, because I really like to value the property for what it actually is. But, data shows that this strategy works to get those first bookings in. And these bookings have to be perfect experiences for your guests, so good, that they'll be happy to give 5-star reviews. Those reviews will get you new bookings without discounts!
Our management company uses dynamic pricing software. I'll determine the right price for the right day/month, based on competition and occupancy in the market, events in the surrounding area that might attract tourists etc. It is amazing!
4) Double down on check-in process, cleaning, service and great reviews
Please guys, outsource the operational processes of running a great Spanish airbnb to a specialized company. Unless of course you live near your holiday rental and you want to make it your personal mission to do check-ins, cleaning, service calls, maintenance calls and all that to get great reviews from your guests.
For our apartment, our realtor/management company manages everything related to the operational aspect of running a holiday rental. As mentioned before, they also manage the listings and pricing of the property. By leveraging the experience of this company, we get to profit from their Superhost status on airbnb and get great reviews.
As an owner, my advice would be that you focus on the investment part of having a holiday rental in Spain. So, investment cases for new purchases, furnishing investments, payment of utilities and especially running a rock solid financial administration that is tax compliant. Heads up: Excel won't do for this!
5) Calculate your cashflow and return on investment
Tracking cash flow and return on investment is essential to understand how profitable the property really is. We looked at both monthly and annual cash flow, factoring in all costs from mortgage and maintenance to taxes and management fees. By keeping tabs on these numbers, we always know how the property is performing from a financial perspective.
Tip: An income/expense tracker or an administrative tool can make it easy to keep track of your finances, giving you a clear picture of your return on investment. You can build your own bombastic Excel or sign up for AvenidaHQ to have it all taken care of.
