If you plan to buy an investment property in Las Palmas de Gran Canaria city, there are two ways to generate high rental yields: Holiday rentals and residential buy-to-let.
But which of the two is the better long-term investment?
Tourist rental or long-term lets in Las Palmas?
Most rental-investment buyers in Las Palmas are drawn to the high potential yields from tourist or short-term rentals. However, the tourist rental market in Las Palmas is maturing fast and the number of properties has grown exponentially.
There are still good returns to be made from quality properties in beachside or old town locations. However, yields are starting to drop for smaller properties and those away from the hotspots.
Add to this the legal uncertainty surrounding holiday lets in the Canary Islands and there is a good case for considering a residential Las Palmas buy-to-let.
Here’s a summary of the pros and cons of the two rental investment models in Las Palmas…
Holiday lets in Las Palmas: Pros and cons
There are two big advantages of buying a holiday rental property in Las Palmas. Higher potential yields and the fact that you can use your property when you choose.
The cons are that holiday rental management is time-intensive, carries a higher tax burden and requires a lot more paperwork.
- License applications (and even applying for the papers you need to make the application) are running months behind schedule. The law governing touristic rental in the Canary Islands is due to change at some point in late-2018 or 2019.
- Holiday let owners pay 7% IGIC on their income as well as income tax.
- Most holiday let investors pay a management company to run their rental at a rate of between 20-25% of gross income.
- Yields are dropping as the market matures, especially for smaller properties.
There is no doubt that a quality holiday rental in the right area of Las Palmas is an excellent investment. Here are a few pointers on making sure your Las Palmas holiday let is a quality long-term investment.
Las Palmas buy-to-let: Pros and cons
According to property portal Idealista, returns on residential property in Las Palmas de Gran Canaria city are currently the highest in Spain at 8.1%.
Demand is high as the local economy is doing well and supply is tight due to the rise in holiday lets, a lack of new-build property, and pent-up-demand from locals looking to upsize.
Investing in Las Palmas buy-to-let property is also cheaper than buying a property that generates high holiday let yields.
Rental demand is highest in the flat parts of the city such as the Puerto and Vegueta/Triana. However, rents have risen sharply across the city in the last few years.
This means that a canny rental investor could build up a portfolio Las Palmas buy-to-let property and generate excellent yields.
- Yields are amongst the highest in Spain
- Initial capital investment is lower, especially if you focus on areas away from the beach.
- Ongoing costs of owning property in Las Palmas are low.
- Paperwork and tax rules are simpler for residential rentals.
Las Palmas de Gran Canaria rental costs
If you opt for a residential investment property in Las Palmas city, you pay income tax (around 20% minus expenses) on the revenue but not IGIC (VAT). You only have to do an annual tax declaration. Non-residents pay income tax at the higher rate of 24.75%.
All property owners, even non-residents, have to do an annual income tax declaration in Gran Canaria.
Note that if you own a Gran Canaria property as a non-resident and do not rent it out, there is a small annual “Sunshine” tax to pay.
Tourist rental income is subject to 7% IGIC. You need to do quarterly tax declarations as well as your annual declaración.
Estate agencies charge one month’s rental as a fee for finding a tenant. However, this is normally paid by the tenant rather than the landlord.
If you are a non-resident or need a management company to look after your residential rental, this costs at least one month’s rent per year. The exact cost depends on the services that the management company offers.
More on the costs of buying a Gran Canaria property.
Las Palmas de Gran Canaria rental management services
Many Las Palmas estate agencies and gestorias (tax/paperwork advisor) offer rental management services for both tourist and residential lets.
Please contact me if you plan to rent your property and would like a recommendation.
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