In which cases is it worth renting out a property and in which cases is it better to lease it out?
July 13, 2023 | 40,00 EUR | answered by Petra Höfer
Dear tax advisor,
My name is Dietrich Lang and I am facing the decision of whether to rent or lease out my property. I own a multi-family house with several apartments that has been vacant so far. I am considering whether it is worthwhile to rent out the apartments long-term or to lease them out to holiday guests in the short term.
Currently, my property is vacant and I have not generated any income from it. I am concerned about how to best utilize the property to generate profits and cover costs. I am wondering if it would be more beneficial in my case to rent out the apartments long-term to have a stable income source, or if it would be more worthwhile to lease them out short-term for flexibility and potentially higher income.
What factors should I consider in order to make the right decision? Are there specific tax aspects I should consider when deciding between renting or leasing? What are the pros and cons of the different options in terms of return on investment, risk, and effort?
I would greatly appreciate your help in guiding me with my decision and providing possible solutions to optimize the use of my property.
Thank you in advance.
Sincerely,
Dietrich Lang
Dear Mr. Lang,
Thank you for your inquiry regarding the decision of whether you should long-term rent out or short-term lease your property. This decision certainly depends on various factors, which I will explain in more detail below.
First and foremost, it is important to note that long-term rental of apartments generally provides a stable income source. If you have long-term tenants, you can expect regular rental income, providing you with some level of financial planning security. Additionally, with long-term rental, the effort of regularly searching for new tenants is eliminated.
On the other hand, short-term rental to vacation guests offers the opportunity to generate higher income, especially in touristically attractive regions or during certain seasons. However, occupancy rates for short-term rentals may not be consistent, and the management and care of vacation guests may require more effort.
There are also tax differences between long-term rental and short-term leasing. Rental income from long-term apartments is subject to income tax, but can be partially reduced through depreciation and advertising costs. Short-term rental to vacation guests may be subject to different tax regulations that need to be considered.
To make the right decision, you should consider the following factors:
- Your personal goals and expectations regarding the use of the property
- The location of the property and the demand for long-term rental apartments or vacation accommodations in the region
- The financial impact of the various rental models on your income and expenses
- Potential tax consequences and optimization opportunities
It may be beneficial to conduct a detailed cost-benefit analysis for both rental models to better assess the long-term effects on your finances. I am available for personalized consultation to help find the optimal solution for the use of your property.
I hope this information helps you with your decision and I am happy to answer any further questions you may have.
Sincerely,
Petra Höfer
Tax Advisor
