Holiday Rental Owners Please Help

You have got it about right. I villa with a private pool in Moraira would make £1,000 to £1,200 in August including cleaning, linen, starter pack etc. There is 16% IVA on the services only. After deduction of services, IVA and commission the owner gets about half of this. A good villa would rent for 18 to 20 weeks, longer if it has a heated pool. Only 5 weeks of this would be at the "Peak" season rate, other weeks a lot less.

Electricity and gas (for heating and air cond) are metered and the client pays.

With this type of property the income is substancial but not what you could consider a valid investment, more a labour of love.

Homefinder

With regards to Holiday Rentals

I totally agree that the returns on rental are not the greatest to say the least, I would however query those costs and more importantly who pays for them. The idea is that the Owner gets as much as possible, there seems to be a bizarre ideaology from a lot of Owners and Agents that the Agent should earn and the Owner gets whats left!

The product/commodity is surely the property and the customer/client is the Owner, they should be returning as much as possible.

25% for an Agent is extremely high, in my opinion, even for a Holiday rental it should be 15% max (And I am an Agent!!)

The cleaning costs, laundry and meet & greet are all paid for by the incoming tenant to the property manager/Agent on arrival, NOT from the rental price.

The costs for the Owner should only be Agents commission, tax and running costs of the property or holiday maker duration. If the utilities are metered then this is already factored into the rental and cannot be abused by the tenant without them paying for it.

Also the rental price is a reflection of the amount of marketing the Agent does, if the marketing is extensive then the Owner will get the price they want (being realistic) and not have to get into a price war with not so switched on Owners.

With regards to Long Term Rentals the return is poor and it is just a contribution towards overall costs due to the fact that a lot of Owners in my area have high mortgages some were 100% so they won't be covering their mortgage and overheads anytime soon.

Long Term does take the uncertainty out of the equation versus holiday rentals over the course of the year, but it is still low and on the negative side all the legalities, tenants and their issues if anything goes wrong or you get a bad one it can leave you wondering why bother!

A lot of Owners seem to be of the mindset, I'll take the risk of getting a bad tenant as I need to generate some income as the exchange rate and my financial situation back in the UK can't sustain the whole deficit on the property costs. (and it is a risk stacked in their favour, they're not all bad tenants you know!) 

 Homefinder, Well I would be very surprised if you are able to obtain 18 + weeks rental. As after income tax the owner will get only 25% of the rental, I would have to agree that it is a labour of love on the owners part to rent property out. Plus the cost of a property in Moraira would make the return a joke.

I think you have understood why you won't be changing my mind and using an Agent. Good luck with your business! Kevin

 Embie, I find some of your comments surprising. Do you really think holiday lets customers are going to want to know about the amount of electricity or water used. You can't get an accurate bill in Spain for months. How do you really propose doing this with a weekly rental. I have rented properties in Spain for over 25 years and would have walked away if someone had to try and load these extra charges on me!

On my own property I've still not discovered the whereabouts of a water meter, can't get into read my electrcity meter as it is in a locked cupboard and the electrcity company will not give me a key. Yes you can keep adding items on the price but all you will do is price the property out of the market! 

Lots of people I knew that holidayed in Spain previously are now going elsewhere because of the high costs because of the exchange rate. And Spain are putting taxes up!

I think you will find most agents do charge 25% for holiday lets and offer a minimal service. Yes you may be different from the norm but most agents are not in this to make a profit for the owner! Are they going to run their business at a loss? No way. 

I do feel very sorry for owners that bought on big mortgages with the promises of lots of rental income! They have no way out but to dig deep in their pockets and thank the wonderful agent that sold them the property! I am lucky I bought late last year and have obtained a great bargain and have enjoyed about 11 weeks in the sun this year.

Kevin

Hi Kevin

I totally agree that there are Agents out there charging a lot for not a lot, these days, just like the sales commissions, are coming to an end.

With regards to the utilities an approximation is easy to work out, however the rental is unfortunately geared to the market price rather than how it should be i.e. work out your costs such as Agent fee's, mortgage, utilities, comm fee's and so on then your mark up and that's your rental price. It's a tenants market as well as a buyer market and therefore the rental price has to be competitive but not necessarily the give away price that some are doing.

You don't have to run your business at a loss to have the Owners best interests at heart, infact I would say that it is essential to have the Owners interests and the condition of the property at heart to be successful. We rented out everything we had during the Summer period and were turning people away after filling some of our competitors/collaborators places too!

This area was the only area that was up on Tourists in the whole of Spain (up 12%), Spain will always be the old favourite amongst the Brits even with the emerging markets and was I believe still no.1 this year for Tourist volumes.

The market is not just the Brits though, this market has been good for a long time and it's now due a slack period!

For the rest of Europe Spain has become very attractive especially with the Scandinavians, French (more and more re-locating long term), the Dutch and Belgians are becoming prominent and are buying down here as well as renting for Holidays and Long term. 

With regards to Holiday Rentals, I know I'm biased but a good Agent should be making you more money than you would normally achieve yourself despite commission, unless you invested more capital, had the marketing knowledge (not just placing adverts by the way) and did it as a part time job. They should also be the haven of security and peace of mind, not a necessary evil as some opinion's seem to be or someone you want to avoid like the plague as in your case.

I can understand your negative opinion of Agents, the financials/yield especially with those ridiculously high commission charges, maybe it's time to look for another Agent rather than leave your place fester or simply be a Holiday home.

How is good ol' Sussex by the sea, I see the new stadium is coming on well, I'm Brighton born and bread (well Hove actually, Patcham and Peacehaven)

I am not going to deny that Spanish holiday rentals only provide a very low return on capital investment but Kevin does not quite have it quite right but bear with me while I explain. Lets take a £1,000 rental as a guide and generate some "ball-park" figures.

Through an agency the owner would receive around 50% of this after deducting service costs (including IVA) £250.00 and agents commission (including IVA) £250 and pay 25% tax on the remaining 500 and actually receive £370 after tax.

If it was booked directly the client would expect to pay around 20% less i.e £800. The owner would have service costs but there would probably not be any IVA involved, so lets say £200 but the owner would have to pay the 25% for the full amount received i.e. another £200 leaving just 400 - only £25 more.

On top of this owner has the expense of advertising, telephone etc. and the hassle of arranging everything in order to make just £25 more - so what's the real point.

Well the real point is that the owner won't declare some of the rentals or none at all and that is the only way it makes sense. The real problem for the owner here is the rsik of detection and a heafty fine.

I am having a real "hammer and tongs" with MariadeCastro in another thread here about the Rental Laws in Valencia. You all might like to read that one as well because they have introduced a registration scheme for tourist accommodation.

Now talking about electricity charges. Clients obviously cannot be expected to pay for this and it can be a big item if there are hot/cold air cond. units (the best and cheapest solution for holiday rentals). The solution is to install a chep digital meter (160.00 Euros) on the heating circuit and change the client for actual consumption. The agent holds an inventory deposit, reades the meter and deducts before the deposit is returned.

Perhaps you will all be getting a good idea now about the value of a good, honest rental agent and what we have to do to earn a few pennies.

Homefinder

 Homefinder, As usual in Spain no one seems to have the facts to be able to give a straight forward answer. Information I had been given previously was that the owner paid 25% tax on the rental income of the property and there was no allowance for any costs associated with obtaining that rental. If it be advertising, cleaning, repairs, agents none of it was allowable against the rental income. It all seems designed to put one off renting a property out. At least if you were paying tax on the profit made on renting out the property it would be fairer for the owner. If your statement is in fact correct that the expenses are allowable there might well be some mileage if one could find an honest and reliable agent. However, how hard will the agent work at renting out ones property when they have several hundred on the books. I know of cases of the agent renting the property out and not passing any income over to the owner! Absent owners are having have great problems trying to sort that one out! Yes I'm sure you will be shocked at reading that but it happens and may not be that rare! 

I would object to paying a further bill for electricity if I had just spent a £1,000 on renting a property. When I have rented a property in the past I have walked away from ones that have had that as a condition! 

I still come back to my point that it is not worth renting the property out when all factors have been considered. The potential damage and abuse that ones property could face is not worth the very poor returns that seem achievable.

Embie, Good old Sussex is just as wonderful as always although I do not live on the coast.

I'm sure there are a number of very good agents around. However, the net returns for the owner of a property that rents out for a £1000 a week are paltry compared to the investment made in obtaining such a property and the upkeep to make sure it is capable of generating that level of income.

Kevin 

The Tax Situation: Depends if you are resident in Spain for tax purposes or not -

• Residents are taxed as normal income and allowed to deduct costs.
• Non-residents have to pay 25% on the groos income and are supposed to liquidate that tax in the country where they make their declaration. Bear in in that there are double taxation treaties between most countries.

If an owner rents directly then obviously the amount received is the gross. If an owner rents through an agency then the agency raises an invoice for the client for the services and another for the owner for the agency commission (both with IVA at 16%). In this case the risidual amount (total - services - commission) is the gross.

Economically it just does not make sense for an owner to rent directly. In practice they do not declare accurately and/or don't trust agents.

Building up Trust: I agree that there are a lot of dodgey remal agents around. Those of us who are honest realise that it is important to build up confidence. The worst sin is to not reveal some of the bookings but I get rond that by having an online booking system. Owners have a username and password, can see their bookings and even make their own

Booking status is provisional (for 3 days and then cancelled) or definite. If a definite booking is cancelled than he owner recieves a percentage for this unless it is replace with another for the same rental.

Joint Venture Rental Contracts: My owners can make their own bookings but my agency always does the servicing for them. They have to state if the guests are friends or family. This is nearly always the case. My agency provides them with a rental eranings certificate at the end of the year for the tax man - nod, nod, wink, wink!

How do you locate an honest agent: By recommendation, find a professional rental agency association locally or ask the local toursit office for the list of licensed ones in the area. Not absolutely fool-proof but you stand a good chance this way.

Not getting a fair crack of the whip: I wish I could find 100's of rentable properties. The truth is that I never have enough these days and have been operating from the same off for more than 20 years. In real terms rental income has been falling for years and the problem is that, when I provide new owners with an honest rental income assesment, they go elsewhere or do it themselves.

Charging for Metered Electricity: At certain times of the year and according the clients own personal requirements the consumption of electricity for heating, cooling and pool heating is minimal. Sometimes these factilities are not required at all. Consequently it would not be fair to clobber all clients waith an extra fixed charge. Another consideration is that we should be responsilbe and encourage prudent use of energy to do our bit to help save this poor old world. When I explain this to my clients they are quite happy to agree to these extra charges and they really are minimal. Air Cond. (for example) for a 3 bedroomed villa is never more than about £40 per week, even in August, and in the not so hot weather less than a tenner. But that is only as long as they use it sensibly i.e. they switch off when a bedroom is vacated and never ever run it with windows and doors open - in which case we could be looking a £100 or more!

Homefinder

Air Cond. (for example) for a 3 bedroomed villa is never more than about £40 per week, even in August, and in the not so hot weather less than a tenner. But that is only as long as they use it sensibly i.e. they switch off when a bedroom is vacated and never ever run it with windows and doors open - in which case we could be looking a £100 or more!

Which is where the Ecosensor comes in handy, previously discussed here!! Having had high bills last year and on receiving much lower bills this year, I am convinced devices like this are the way forward.

Mark

 Homefinder,

Thank you for the time taken to explain things. I think you have gone a long way to reassuring me that if one can find the right agent it just might make some sense. However, you are too far away from my property.

Lack of properties is obviously a real problem in a lovely area such as yours. No doubt part of the attraction is the limited number of properties whick also drives the price up.

Kevin