This article was updated in November, 2023 to reflect recent changes to Airbnb laws in Madrid
Doubtless you have heard many stories about Airbnb. Some true, some a little dubious. Regardless, the platform has revolutionized the property rental market. It has made real estate investment accessible to individuals, even if they don’t have a background in finance or real estate investment. Do you have questions about whether it is a good idea to make a Madrid Airbnb investment? Here we address the FAQS most relevant in 2023.
Municipalities are beginning to regulate Airbnb rentals
After Airbnb expanded into Germany in 2011, beginning its international expansion, it started to grow very quickly. In 2022, there were 2.9 million Airbnb hosts/hostesses worldwide. In many European tourist capitals, Airbnb was supplanting traditional hotel stays. All major European cities now have significant numbers of Airbnbs.
Given this great success, a backlash began. Much of it was political: locals claimed that Airbnb investment was driving up real estate prices and making home ownership too expensive. In other cities, like Athens, hotel owners claimed that Airbnbs were degrading their businesses.
Although much of these arguments are purely political, they nevertheless have caused significant changes in how local governments regulate Airbnbs. London began regulating short term rentals in 2017; a homeowner can only rent their property for 90 days of the calendar year. If they want to rent it for longer, they must apply to their local council for permission. Parisian authorities went one step further. They made a law that stipulated that if a homeowner wants to rent their property short term, it must be their primary residence. This essentially makes it illegal to purchase a property for investment purposes. Rome, Barcelona and Athens have also imposed restrictions on short term Airbnbs. To learn more about these changes in regulations, we refer you to the article: How to optimize rental income with new European Airbnb regulations
What restrictions has the Madrid government placed on Airbnb investment?
Although the Madrid government hasn’t completely stopped issuing tourist licenses for short term rentals, like happened in Barcelona, the restrictions are much tighter than they used to be. Now, tourist licenses are only granted to ground or first floor properties with no neighbors underneath. There are additional requirements, stipulated by the city, that must be met. Finally, the property must be certified by an architect.
Madrid authorities still allow medium and long term rentals. We recommend renting your apartment medium term for the following reasons:
- Higher rental yields
- Less risk of people over staying their lease. If someone has a year long lease and over stays, under Spanish law it can take a long time to evict them, even if they don’t pay rent
- Fewer legal responsibilities
- You can stay in your apartment a couple weeks, or even months, out of the year
Is investing in an Airbnb property even lucrative anymore?
Yes, it is. Given the post covid trends of working remotely and people becoming digital nomads, Airbnb stays continue to grow around the world. This is particularly true for medium term Airbnb rentals. In the past, people largely rented Airbnbs for short term vacation stays. Now, an increasing amount of people rent Airbnbs to live/study in a city for a semester or even a few months.
Although returns are often a little lower when renting medium term Airbnbs vs. short term Airbnbs, the associated costs are much less. Furthermore, there is much less maintenance required, less wear and tear on the property and definitely fewer headaches. Having 2-3 tenants in your apartment every year (if you rent to students or digital nomads), vs. 50+ if you rent short term, means your Airbnb will be much lower maintenance under new regulations.
PRO TIP: Since there are many rental properties in Madrid, how do you make your property listing stand out against the competition? You make your apartment unforgettable! If you do this, you will always have high occupancy rates. Renovate your apartment so it “pops” on internet listings. This will maximize the value of your Madrid property investment.
What are the best zones for Airbnbs in Madrid in 2023?
Since the “sweet spot” for optimizing Airbnb rental income in 2023 is medium term rentals (28 days – 11 months), we recommend certain neighborhoods for buying properties. This is because the target market for medium term rentals is students, academics and digital nomads. Furthermore, property prices in some neighborhoods (such as Chamartín) have appreciated considerably, so buying in a neighborhood like Tetuán will help you maximize your net rental yield.
There are two neighborhoods we recommend: Tetuán, if you want a larger apartment (3 bedrooms) or the Center if you want a one bedroom apartment.
Why you should make a Madrid property investment in 2023
To summarize, there are many reasons to make a Madrid property investment, even with the new restrictions on short term rentals.
You can make excellent returns
Madrid Estate clients earn, on average, a 4-5% return on their property investments. This is much higher than the net yield that most investors receive on their medium term property investments.
The sweet spot for Madrid Airbnb investment in 2023
Our recommendation is for clients to invest around 350k€ if they want larger apartments, or 250€ if they want smaller apartments in the Center. To learn more about the sweet spot for Madrid Airbnb investment in 2023, we recommend you read: Case study: Medium term Madrid property investment
You can diversify your investment portfolio
When most people invest, they think about buying domestic equities or bonds. However, the real estate asset class is by far the largest in the world. Before Airbnb, most main street investors did not have the knowledge or expertise to invest in real estate. Investing in a Madrid Airbnb will not only allow you to diversify your investment portfolio across asset classes, but will also allow you to add an international investment to your portfolio.
You revenue stream will be much more predictable than with other asset classes
Most students rent apartments for the entire school year: August-May. They rarely change apartments between semesters, so if you invest in a Madrid property and rent it medium term to a student, you can lock in a guaranteed return for ten months out of the year.
You will have a summer house in Europe
Summer is when most people choose to travel to Europe. If you rent your apartment to a student, you will have two months every summer to stay in your apartment, host friends/relatives or use it as a base to travel around Europe.
You can obtain European residency for you and your family
Spain has a golden visa law that grants European residency to anyone that invests 500k€ or more in Spanish real estate. Moreover, there are no requirements for you to remain in Spain for extended periods of time. Thus you can buy a property in Madrid, obtain European residency and then earn a 4-5% return on your investment.
