There is much noise around vacation rentals and rental yields of property in Ibiza.
Let us have a closer look of what really is going on and the different options you might have as a homeowner or an investor in the premium segment of the Ibiza real estate market.
There are three main alternatives to rent your property if you have a tourist rental license (ETV) and two options if you don´t.
As a holder of an ETV license, you can rent out you property for shorter term, vacation rentals which have the highest rental yield. If the property doesn’t have this license, you can only rent for the mid and long term.
There has been strong & growing demand for holiday rentals in recent years and the industry is maturing from a cottage mom & pop into a more professionally managed multi property agencies.
The business now claims over 50% of overnight stays on the island.
Most property owners hand over the management of their homes to one or several professional agencies who charge a fee or a commission on the rental income.
The agency takes care of sourcing,selecting and servicing the guests.
Mostly cleaning, maintenance, utilities, insurance and amenities are provided and paid for by the property.
Owners can, of course, block out any dates they would need for their personal use.
In some cases, homeowners can also rent their property to the agencies for the entire season in exchange for a guaranteed return, similar to seasonal rentals.
The second option is to rent for the season, typically this would be 4 to 6 months, from April/May to September /October. In this case, some of the costs are assumed by the tenants and often include utilities and local taxes.
The third option is longer term rentals, these are usually annual, with a minimum established by law. Again, most costs are assumed by the tenant but they have the option to stay for very extended periods.
So let´s do some numbers on what kind of returns you could expect in each case
Let´s look at the higher end of the market and take as an example, a €4 million finca or contemporary home with 5 or 6 bedrooms, a decent size pool, set in well kept garden and with some nice views onto the sea or onto the countryside and with the valuable ETV rental license in place.
Vacation Rentals
The holiday rental market usually opens around Easter and closes at the end of October with Halloween.
July and August are the busiest, though June and September have become more popular in the past few years, as well as the opening and closing weeks of the clubs on the island.
Mostly, consider there are some 20 rent-able weeks during the season, with varying weekly prices and occupancy. An occupancy of 60% or 12 weeks could be considered the norm and using the above sample home, you could expect an average adjusted rent of around €15,000/week or €180,000 per season.
Calculate the agency fees of 20% and around €1,500 costs per booked week in utilities, cleaning, maintenance and laundry, that leaves you a gross operating of €126,000 per season or a 3.2% pre tax yield.
In addition over the next few years you may well see the season extend to the winter months especially around Christmas time which has been much busier in the last few years or the season may even start early March and end mid November, as more and more activities and sport events take place throughout the year, and so giving you some more yield capture though more bookable weeks.
Seasonal Rentals
The seasonal rental market usually means 4 to 6 months May to October.
There has been growing demand in recent years from HNWI looking for a second residence in the sun to fly to regularly as the weather gets better, and stay with their families throughout the school holidays during the summer.
Also professionals and high flyers able to work remotely from the island, or potential home buyers checking out what is is like to live on the island for extended periods or just the executive seasonal work force or resident DJ´s needing a cool place to rest and a retreat from their busy schedules.
Demand is there for the seasonal market and priced somewhere between the vacation rental and the long term rentals.
For the property owner this lower yield comes with some advantages. the houses usually suffer less wear and tear, utility and cleaning costs and some local charges are assumed by the tenants and especially customer and agencies demands are lighter particularly on the check in check outs that the short term rental market requires.
The seasonal rental for the same house could be in region of €70,000-€80,000 for the 4/6 month period.
Here we are looking at gross yields of some 1.7%-2% but you do get the use your home the rest of the year!
Long Term Rentals
The long term rental market usually means annual rentals, that under the current rental laws are established for 5 years (or 7, in the case of a company rental) where the tenant can leave before provided sufficient notice is given to the landlord,usually 2 months.
The disadvantage is that you may forfeit any personal use of your house for that period.
This option also has seen growing demand in recent years again from people looking for a second residence, and for their families to use throughout the school holidays, without wanting to commit to buying a house.
UHNWI, Executives, Entrepreneurs, Professionals and High Flyers that are able to work remotely from the island or potentially home buyers, checking out what is is like to live on the island for extended periods, or as a base while they are building their homes in Ibiza.
For the property owner the lower yield comes with some advantages. Most of the running costs, utility and cleaning costs and local charges and taxes are assumed by the tenants.
The annual rental again for the same house could be in region of €85,000-€100,000.
Here we are looking at gross yields of some 2.2%-2-5% but you may not be able to use your property for a good while!
So yes, there is yield in all possible options.
Don´t be fooled by some of the figures I have heard being thrown around, some talk of over 5% yields in seasonal rentals or 8% yields in the holiday rental option. This is not the case in the premium market.
It may be the case for some exceptional home, situation or season but it is not, by any stretch, the norm.
Still 3.2 %, with some upside, on your property through short term rental and you still get to enjoy your home when you want is a compelling proposal!
Or, a 2% for the less demanding seasonal rental but you still get use of your home off season.
Finally, on long term rentals, you can view the property as a purely financial investment, where you can get an annual yield of 2.5% on an asset that will most likely appreciate over time. Not bad either!
