Your vacation property – to rent or not to rent?

You have decided to buy or already own a vacation property and now you are wondering whether or not you should rent it out. Below we bring you the pros and cons of both options to help you make a decision.

RENTAL

There are two types of rentals – tourist and long-term. Given that the income and costs of tourist and long-term rentals are significantly different, it is necessary to consider both options separately.

Tourist rental

With tourist rentals, the daily rental price is significantly higher, so the earnings are higher.

Accordingly, operating costs are also higher (booking platform, cleaning, linen washing, check-in and check-out, consumables). The cost of operating costs for tourist rental properties usually ranges between 30 and 40% of the total income.

In addition to operating costs, utilities costs are also slightly higher, considering that the property with all its equipment is in complete use almost every day.

As the owner of a property in a tourist rental, you are obliged to take care and bear the costs for the full maintenance of the property (from cleaning to installation maintenance).

In addition to the costs mentioned above, as a small renter you are also obliged to pay several public fees: annual flat rate for tourist tax in the amount of roughly 50€ per bed, annual flat rate tax per bed in the amount of roughly 40€ per bed and tourist membership fee fee in the amount of 6€ per year. The stated amounts are prescribed by the authorities for the Zadar County for the year 2022, and as such are subject to changes in the future, so it is advisable to check them before the start of each tourist season.

It is also important to point out that the tourist rental largely depends on various factors that you cannot influence as a property owner, such as weather or economic conditions, which means that every tourist season carries a dose of uncertainty. As a tourist renter, you, the person or agency to whom you have entrusted the care of the rental, must be adaptable and ready to react quickly in case of various interventions (e.g. malfunctions of electrical devices), communicative and easily accessible to guests, which of course requires additional effort and time.

But don’t let the long list of costs and obligations frighten you, because despite them, tourist rental of real estate is a very profitable business, which we will show you with an example later.

Long-term rental

In the case of a long-term rental, the rental price is usually determined on a monthly basis, and compared to the prices of tourist rentals, it is lower, so the total income of the property owner is also lower.

The tenant is obliged to treat the rented property as a good host, which means that he is responsible for the basic maintenance of the property (e.g. cleaning or mowing the grass), while the lessor, i.e. the owner of the apartment, is responsible for the long-term maintenance of the property, which includes the care and bearing the costs for all the major works that the property requires in the long term and are therefore considered an investment in the property (e.g. plumbing works or replacement of electrical appliances).

There are no operational costs for long-term rentals, and the lessee of the property is responsible for covering utilities costs, except for reserve fund costs if there are any. It is important to note that for the reserve fund costs the law does not determine who is obliged to pay them (the lessee or the lessor), but in most cases these costs are borne by the lessor, considering that they relate to the maintenance of the building in which the facility is located, which is nevertheless in the long-term interest of the lessor.

As a private long-term apartment renter, you are not obliged to pay the flat-rate fees specified for tourist rentals, but rather tax and surtax on the rent. According to the official data of the Zadar tax administration office, the cost of total taxes and surcharges for year 2022, after adding up and subtracting all necessary items, amounted to approximately 12% of the total contracted rent.

Below you may find a table with a simple comparison of income and expenses for both types of rentals on the example of a one-room apartment with two bedrooms from the perspective of the property owner.

As it may be concluded from the table above, tourist rentals definitely bring higher earnings than long-term rentals. Tourist rental certainly means more work in terms of coordination of complete rental and more frequent urgent or less urgent interventions, which justifies higher earnings. For the property owner, it is certainly simpler to leave this type of rental to a professional agency in order to ensure the highest possible income while the agency takes care of everything else.

On the other hand, long-term rental brings lower earnings, but also significantly less work. Once you find responsible tenants, all the work related to the rental is reduced to a minimum of communication regarding the payment of the monthly rent, and the necessary maintenance of the property itself. This is what many real estate owners prefer, so they are ready to accept lower earnings.

VACATION PROPERTIES TAX OR THE SO-CALLED SECOND PROPERTY TAX

This article is of an informative nature, so we strongly recommend that before you decide on one or another type of lease, you should definitely contact the competent office of the tax administration or one of the private tax advisors so that they may advise you accurately and in a timely manner about all the costs that you can expect with the lease of your property and also about the amount of income taxes and surtaxes you may expect, which depend on your total income from all sources, and thereby could not be taken into account in the table overview above.

AND IF I DO NOT WANT TO RENT MY PROPERTY AT ALL?

Your property is yours only, and you are in no way obligated to rent it or not. Many people dream of an occasional or permanent retreat from everyday life in warmer seaside regions, so it’s nothing unusual that after you’ve found your ideal holiday property, you don’t want to share it with anyone except maybe your family and friends. After all, why not? You deserve it.

When deciding to buy or when acquiring a property, you have surely taken into account that a vacation property is not only a pleasure, but also a current expense, so below we will list all the current costs that you can expect when owning a property in Zadar region:

basic utilities costs in addition to consumption, the costs of full maintenance of the property, as well as the annual vacation property tax.

The annual vacation property tax is applied if you do not have a registered residence on your property, which is usually the case with holiday properties, and amounts from 0,66€ to 2€ per m2 of usable area, depending on the local government unit where your property is located.

Basic utilities costs start from approx. 30 EUR per month, and they largely depend on the location and size of your property, as well as on the consumption itself.

Property maintenance costs depend on location and size, but mostly on the condition of your property. If we look at the average maintenance costs for a period of 10 years for a property that was purchased in a neat or renovated condition, we may estimate that the maintenance cost for a one-bedroom apartment in a popular location would be approximately 50€ per month over a ten-year average, while for a house with a swimming pool with a large garden in the first row to the sea it would be approximately 300€ per month for the same period.

PROPERTY INSURANCE

We cannot stress enough how important it is to have a valid real estate insurance policy, the prices of which start from 100€ per year. That cost is negligible compared to the security it brings you. Damage from floods, earthquakes, fires, and other weather or human factors are not at all rare, so a valid insurance policy for your property will ensure you a peaceful night’s sleep. Whether you rent your property or not, let its insurance policy be an unavoidable and welcome expense.