How to Calculate the Break-Even Point for Short-Term Rentals?

🏡 Introduction: What Is the Break-Even Point for Short-Term Rentals?

The break-even point is the moment when rental income covers all costs associated with the investment. Exceeding this point means that the property starts generating real profit.

Short-term rental (e.g., through Airbnb, Booking.com) can yield higher income than long-term rental, but it comes with higher operational costs. Therefore, it is crucial to accurately calculate the break-even point.

📊 1. Key Elements for Calculating the Break-Even Point

💰 A) Fixed Costs (annual):

🏡 Property tax (IBI): €300–600 per year
💳 Community fees (if applicable): €1,200–2,400 per year
🛡️ Property insurance: €300–500 per year
🧼 Cleaning service: €1,000–3,000 per year (depending on the number of rentals)
💡 Utilities (electricity, water, Internet): €1,000–2,000 per year
📊 Booking platforms (Airbnb, Booking commission): 15–20% of the booking value

💸 B) Initial Costs (one-time):

📝 Purchase tax (ITP) or VAT: 6–10% of the property value
🖋️ Notary and registration fees: 1–2% of the property value
🛋️ Furnishing the property: €5,000–15,000
💳 Agency fee (if applicable): 3–5% of the property value

📈 C) Rental Income:

📆 Average price per night: Varies depending on location:
- Costa del Sol: €150–300 per night
- Alicante, Costa Blanca: €100–200 per night
- Canary Islands: €120–250 per night
🗓️ Average occupancy: 60–80% annually in popular tourist regions.

🧮 2. How to Calculate the Break-Even Point for Short-Term Rentals?

📊 Break-even formula:

Break-even point (number of days) = Annual fixed costs ÷ (Average price per night × (1 - platform commission))

📝 Calculation Example: Apartment in Alicante

Input data:

Average price per night: €150
Average occupancy: 70% (about 255 days a year)
Airbnb commission: 15%
Annual fixed costs: €6,000

Step 1: Calculate the net income per night:
Net income = €150 × (1 - 0.15) = €127.5

Step 2: Calculate the break-even point:
Break-even point (number of days) = €6,000 ÷ €127.5 = 47 days

Conclusion:
Under the above assumptions, the apartment will reach the break-even point after 47 rental days in a year. This means that after renting the property for about 2 months, the owner will start earning.

💡 3. How to Lower the Break-Even Point and Increase Profit?

📌 A) Optimize Occupancy:

🖼️ Professional photos: Attractive photos can increase bookings by 20–30%.
🌟 Excellent reviews: Consistently maintaining service quality (cleanliness, quick check-in) increases repeat bookings.
💳 Loyalty programs and discounts: Discounts for longer stays (e.g., weekly or monthly).

📌 B) Cost Reduction:

💡 Energy-efficient solutions: Installing air conditioning with motion sensors and LED bulbs.
🧽 Self-management of rentals: Saving on agency management fees.
🛡️ Bundled insurance: Combining property insurance with landlord liability insurance.

📌 C) Increase Revenue:

🏊 Additional amenities: Pool, jacuzzi, or parking space increase the attractiveness of the offer.
🛏️ Room rental option: Renting out individual rooms instead of the entire apartment during low season.
🏡 Price flexibility: Automatic price changes depending on the season (e.g., higher prices during holiday and vacation periods).

📈 4. Break-Even Point for Short-Term Rentals in Popular Regions of Spain

🌞 Costa del Sol (e.g., Marbella):

Average price per night: €200
Occupancy: 75% (274 days a year)
Annual costs: €8,000
Break-even point: 50 days

🌊 Costa Blanca (e.g., Torrevieja):

Average price per night: €120
Occupancy: 70% (255 days a year)
Annual costs: €5,500
Break-even point: 46 days

🏝️ Tenerife (Canary Islands):

Average price per night: €150
Occupancy: 80% (292 days a year)
Annual costs: €7,000
Break-even point: 47 days

💳 5. Is Short-Term Rental in Spain Profitable?

✅ Advantages of short-term rental:

💰 Higher income: Potential to earn 2–3 times more than from long-term rental.
🗓️ Flexibility: Ability to use the property at any time.
💡 Increase in property value: Properties in tourist regions appreciate faster.

❌ Disadvantages of short-term rental:

🧹 Higher operational costs: Cleaning, utilities, managing bookings.
🛡️ Legal regulations: In some regions (e.g., Barcelona), there are restrictions on tourist rentals.
💳 Taxes: Rental income is subject to taxation (for non-residents, the tax is 19% of net income).

📝 6. How to Properly Calculate Return on Investment (ROI)?

📊 ROI formula (Return on Investment):

ROI = ((Annual rental income - Annual costs) ÷ (Property purchase cost + Initial costs)) × 100%

📝 Example:

Purchase price: €250,000
Initial costs (notary, tax, furnishing): €30,000
Annual income (255 days x €150): €38,250
Annual costs: €7,000

ROI = ((€38,250 - €7,000) ÷ (€250,000 + €30,000)) × 100% = 11.7%

💡 Conclusion: The investment yields a 11.7% annual return, which is significantly higher than bank deposit interest rates.

🏡 7. Best Locations in Spain for Short-Term Rentals:

🌞 Costa del Sol (Marbella, Estepona):

✅ Highest rental rates in season.
✅ High demand for luxury apartment rentals.

🌊 Costa Blanca (Alicante, Benidorm):

✅ Affordable purchase prices.
✅ High interest from tourists from Northern Europe.

🏝️ Tenerife and Gran Canaria:

✅ Tourist season all year round.
✅ Popularity among “digital nomads.”

🌇 Valencia:

✅ Increasing popularity of short-term rentals due to tourism development and “Smart City” projects.

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