Profitability of tourist rentals in Madrid: Is it worth it?

What is the profitability of tourist rentals in Madrid? This is a question that, as an owner, must be on your mind. When faced with the opportunity to rent your apartment, several doubts arise, and one of them is knowing which option is most profitable. 

Will vacation rentals or traditional rentals be better? Well, that's going to depend on several factors, including demand, local regulations, and rental demand. Although, it is also important that you consider the advantages and disadvantages of each type of rental before deciding. 

And to make your job easier, in this article we are going to give you the information you need. Take note. 

Tourist rental in Madrid: Profitability, advantages and disadvantages

According to data collected by the economist, the profitability of tourist rentals in Madrid was 12,582 euros per year. In contrast, traditional or residential rentals have an estimated ROI of 11,736 euros per year. 

Furthermore, the same data indicate that temporary rentals have better numbers, with 13,762 euros per year. However, when comparing the net profitability margins, the information indicates that traditional rental has a better percentage. 

The exact number is 10% more profitability in temporary rentals. This is due to the occupancy rate, which is a key factor in the profitability of a tourist rental. 

However, the risks associated with traditional rentals make owners think twice before choosing this model. Even with tax incentives involved, more and more people prefer to rent their apartment for short periods. 

Pros and cons of tourist rental

In addition to the profitability of tourist rentals in Madrid, you must also evaluate the pros and cons that it entails. 

Advantages of temporary rental:

• Higher income in the short term. In the most prominent areas of Madrid, owners can charge higher nightly prices than a traditional rental. This means higher income and shorter periods of time. 

• High demand. More than 8.8 million foreign tourists visited the Community of Madrid in 2024, according to The Vanguard. This means that, throughout the year, this area has a high demand for tourist rentals, guaranteeing a high occupancy percentage. 

• Flexibility for you. Temporary rentals allow you to organize the use of the property. So, when you need it for yourself, you can block ads or adjust availability. 

Disadvantages of tourist rental:

• Local regulations. In Madrid, the regulations to operate a tourist rental are very restrictive, you must have licenses and meet several requirements, which reduces your ability to generate money. 

• More management. If you manage the rental on your own, you will have to take care of reservations, promotion, cleaning and customer service. This can be very tiring. However, you can avoid this by hiring the services of a vacation rental management company that does everything for you. 

So, if you leave everything in the hands of a vacation rental agency, the “more management” disadvantage disappears. What's more, in companies like ours, Dobo Homes, we help you with all the legal management of your rental. 

This way, if you want to invest in renting properties and only worry about receiving the profits...

Your best alternative is a vacation rental management company in Madrid.  

How to calculate the profitability of tourist rentals

If you are thinking about investing in properties to rent, the ideal is that you know how to rent the profitability of a tourist property. Of course, you should also know that there is gross profitability (without deducting expenses) and net profitability (deducting expenses). 

Below we leave you the formulas and a practical case:

• Gross profitability = (Annual rental income / property value) x 100

• Net profitability = (Annual income - annual expenses / property value) x 100

Now, let's look at an example to calculate the profitability of tourist rentals in Madrid. 

Imagine that you have a apartment in Madrid valued at 250.000 € and you rent it on platforms like Pool Homes.

1. Calculation of annual income:

• Average price per night: 120 €

• Average occupancy: 70% of the year (255 nights)

• Annual income: 120 € × 255 = 30.600 € 

2. Calculation of annual expenses:

• Platform commission (15%): 4.590 €

• Maintenance, cleaning and supplies: 3.500 €

• Taxes and insurance: 2.500 €

• Total expenses: 4.590 + 3.500 + 2.500= 10.590 €

With this data, we are going to calculate the net profitability of a tourist rental in Madrid, with high demand. 

Net profitability = (30,600 - 10,590 / 250,000) x 100 = 8.02%

This percentage is above the profitability of a traditional rental, which is usually between 3% and 5% annually. Therefore, the answer to the initial question is yes, it is worth investing in vacation rentals in Madrid. 

But be careful, in order to have high profitability you must have an occupancy above 60%. If your occupancy is very low, the return on investment will not be as attractive, it may even be lower than a residential rental. 

Tips to achieve the best profitability in vacation rentals

Renting properties to make money is not a very complicated business, but it does require a lot of attention. Therefore, so that you can obtain the best benefits from your property, we share these tips:

1. Decorate and furnish your apartment. For potential guests to be attracted to your apartment, you must decorate and furnish it very well. Try to have the place clean, tidy and with everything the tenants need. This will help increase the booking percentage. 

2. Promote your tourist rental. It is important that you place your tourist apartment in the eyes of as many people as possible. You can publish on temporary hosting websites or create your own website. Be sure to add plenty of high-quality images that highlight the best of your apartment. 

3. Manage your prices well. This is a key factor and it is not that simple, which is why we recommend using intelligent tools to help you define prices. That way, you ensure that you offer competitive prices and maintain customer interest. 

As you can imagine, all this means a great demand for work. Fortunately, there are tourist rental management companies that take care of everything for you. All you are going to do is relax and wait for the highest return on your vacation rental. 

So, if you want to forget about managing your property and all the tedious work that it entails... Don't hesitate to communicate with us now. At Dobo Homes we assure you high profitability of your tourist accommodation or temporary rental.