Buying an investment property to rent can be a lucrative venture for passive income that has produced some of the wealthiest people in the world.
At Property Experts Cyprus, we have already covered the key benefits of real estate as an investment as well as the best places to purchase investment properties in Cyprus. The process of buying real estate in Cyprus is fully broken down step by step here.
Therefore, this Property Experts Cyprus article focuses on the aspect of acquiring a property for short-term rental in Cyprus, who it is ideal for, and which pitfalls to avoid. Whether you are buying your first home or are already experienced with real estate investments, there are certain additional aspects to keep in mind when buying an investment property to rent out.
Short-term Rentals via Airbnb & Co. (After Buying an Investment Property in Cyprus)
While long-term rentals of an investment property are a stable source of passive income, short-term homestay, and vacation rentals, for example, through online marketplaces like Airbnb, can be even more lucrative – if done smartly.
In January 2020, a law came into effect in Cyprus, that requires owners of hotels and tourist accommodations to obtain a license. This includes self-catering accommodations on Airbnb and similar providers like HiChee and cozycozy as well as platforms like Booking.
Getting a License to Rent Your Property (After Buying an Investment Property in Cyprus)
The process of obtaining a rental license for your investment property is relatively straightforward. As the grace period after the introduction of the new law has passed in January 2022, violators who fail to register their property can be fined up to 5,000 Euros (or even imprisonment).
Obtaining this license costs 222€ (~ 235 USD) and must be renewed after three years.
1. Download and fill out the application form (available in English) to register your property with the Cypriot Government. Among other information you need to submit your Tax Identification Number, proof of valid insurance, a copy of the building permit, and state whether a natural person owns the property or a legal person (company).
2. If your registration is successful, you will receive a registration number and license from the Ministry of Tourism, which you must display when advertising your property in Cyprus for rent.
Keep in mind that failure to register your long-term or short-term rental property is illegal and these offenses are being prosecuted now.
Paying Taxes on Your Rental Income (With Rental License)
After you have obtained the rental license, you must report your income to the Cyprus Tax Authorities annually. The following applies to Cyprus tax residents:
- Income from rental properties in Cyprus is taxed with personal income tax progressively (0%-35%) after the first 19,500€ (~21,500$) that are tax-exempt per person per year.
- In addition, Special Contribution for Defense (SDC) applies, which is 0% for Non-Domiciled Persons (Non-Doms).
- GeSY (General Health System) tax of 2.65%
- VAT of 9% for rental income above 15,600€ per year (plus business registration) as per new law since 2017
If the property owner is not a tax resident in Cyprus, the rental income from real estate in Cyprus must be declared as “Cyprus-sourced income” in the country of tax residence.
Important: Keep in mind that the VAT you pay when you purchase a property, determines if you are allowed to rent it out. You can pay a lowered 5% VAT on the first 200 sqm of a newly purchased real estate, but only if you live in it yourself. If you plan on renting the property, the full 19% VAT applies at the point of purchase (or you can pay the difference of 14% if you change your mind later on).
If the property is being rented out long-term, you can consider passing on the local authority fees and the sewerage tax to the tenant. However, this is not customary for short-term rentals, respectively it should be considered when determining your margin/rental price.
Does all of this sound overwhelming or do you simply want to focus on other aspects of your life and business? Don’t worry the Cyprus real estate specialists at Property Experts Cyprus are here to help. Contact us for your FREE consultation today!
Property Prices & Real Estate ROI in Cyprus
The price to income ratio assesses purchased apartments for their affordability (the lower the better). With 87.65 in Ghana ranked the highest, and Saudi Arabia with 2.79 ranked the lowest, Cyprus has an excellent ratio at 6.40.
Finally, the price per square meter to buy an average 1-bedroom apartment with 60sqm in the center of Nicosia is 2,110 USD on average, and the price per square meter to buy an apartment outside the city center in Cyprus is 1,550 USD, based on the latest Numbeo data.
This translates to an estimated real estate return of investment (ROI) of 6% for long-term rentals in Cyprus, which is a solid number in global comparison and on the higher end. The ROI was calculated by dividing the rental price per year by the purchase price (purchase price/sqm for an apartment in the city center * 60).
The ROI for short-term rentals can be 10% per year and higher.
When selecting an investment property for rent, you can principally follow the same steps that occur when selecting your own home. In addition, keep in mind the need for short-term tenants (holidaymakers, business people). In particular, they will want to be close to the main features of the area, e.g. the beach, city, supermarkets, entertainment, and not commute long distances every day during their short stay.
Analysis of main Airbnb KPIs in Cyprus
Based on the latest Airdna data (Q2/2022), we’ve analyzed the main short-term rental KPIs of Airbnb in the main touristic areas of Cyprus.
Average Daily Rate (past 12 months)
|Larnaca (895 active rentals)||64€ (August)||49€ (February)||55€|
|Nicosia (360 active rentals)||65€ (January)||59€ (September)||61€|
|Agia Napa (751 active rentals)||129€ (April)||98€ (December)||116€|
|Limassol (417 active rentals)||78€ (July)||70€ (April)||74€|
|Paphos (1155 active rentals)||72€ (August)||59€ (February)||64€|
Occupancy Rate (past 12 months)
|Larnaca||84% (August)||36% (April)||65%|
|Nicosia||71% (October)||38% (June)||50%|
|Agia Napa||68%(August)||26% (January)||48%|
|Limassol||87% (October)||45% (January)||69%|
|Paphos||81% (August)||21% (April)||61%|
Median Monthly Revenue (Nightly Rate + Cleaning Fees over the past 12 months)
|Larnaca||1,045€ (August)||335€ (April)||637€|
|Nicosia||911€ (October)||434€ (June)||578€|
|Agia Napa||1,792€ (August)||523€ (January)||1,120€|
|Limassol||1,071€ (July)||544€ (April)||800€|
|Paphos||1,158€ (August)||259€ (April)||750€|
|Entire Home Rentals||Private Room||Shared Room|
|Studio||1 Bed||2 Bed||3 Bed||4 Bed||5+ Bed|
Overall, over the last 12 months, 1 bedroom apartments as entire home rentals were most popular throughout these key destinations – with the exception of Paphos, where 2 bedroom apartments were most popular, and Agia Napa where anything from a studio to 5+ bedroom apartments is in demand.
In Nicosia, private rooms in a shared home were more popular than in other key destinations on the island, where short-term visitors prefer to rent an entire home for themselves.
In terms of profitability, Ayia Napa with its gorgeous beaches has the highest median monthly revenue out of all regions analyzed in August as well as throughout the year.
On the other hand, Nicosia has the lowest median monthly revenue throughout the year and therefore is less suitable for short-term holiday rentals. However, Nicosia as the country’s capital city is attractive for long-term rentals (locals renting homes) because of its booming business environment.
Throughout the last 12 months, Limassol had the highest occupancy rate. Agia Napa had the most expensive daily rate while Larnaca had the cheapest daily rate for short-term rentals.
Real Estate Investment in Cyprus: Positive Economic Outlook
After the Covid-pandemic recedes in 2022, the international travel and tourism market is rapidly recovering. Cyprus is safe for living and visiting, offers an abundance of art, culture, and history, and perfectly blends vibrant cities with the tranquil countryside.
And we haven’t even mentioned the beaches yet. Cyprus has one of the most beautiful and pristine beaches with crystal clear water, including amazing Blue Flag beaches.
The island’s high quality of life, its strategic location between Europe and Asia, and favorable economical tax framework make Cyprus an ideal investment destination for wealthy overseas investors and entrepreneurs. The cost of doing business in Cyprus is very low overall, the workforce is well educated, and English is widely spoken.
In combination with a large variety of domestic infrastructure developments, financial, technological, and innovative industries are rapidly on the rise. In addition, there is an abundance of financial, tax, and business incentives, including energy efficiency, film production, intellectual property, shipping and yacht registration, and international trusts.
The overall cost of living in Cyprus is very competitive in Europe and globally. According to WorldData, the cost index in Cyprus is 86.3 to the baseline of the USA’s 100. This means that Cyprus is about 14% cheaper than the US. Residents and visitors in Cyprus enjoy a high-quality lifestyle at a very affordable cost for housing, transportation, entertainment, and healthcare.
Rewards of Buying an Investment Property to Rent
Investing in real estate requires a long-term view. If you take into consideration the various aspects, investing in real estate and renting it out short-term (or long-term) can be a lucrative source of passive income.
Real estate is generally considered to be a stable investment that typically rises in value.
Unlike stocks or other financial products, real estate is a tangible physical asset that you can see and touch.
If you are planning on setting your holiday home apart, for example by targeting a specific audience, take a look at this article on how to get Chinese guests on your Airbnb rental.
Questions to Ask Yourself Before Buying an Investment Property to Rent
Before you commit to buying an investment property to rent short-term or long-term, you should ask yourself the following questions:
Do I have the financial capacity, flexibility, and reserves for buying an investment property to rent?
Keep in mind that unexpected expenses (repair, maintenance) may occur or that unforeseen events like the global Covid-pandemic or general ebb and flow of the international travel market may impact the demand for holiday rentals or long-term leases.
Especially with a higher number of people staying at your property, the wear and tear will typically increase. On the other hand, real estate is considered a stable investment overall.
In case you plan on taking out a mortgage to finance your investment property, take a look at this detailed article on how to get a mortgage in Cyprus. Down payments for investment properties generally range between 20%-25% of the property purchase price. Avoid a “fixer-upper” property to minimize additional time and financial investments.
Am I ready to become a landlord?
Regularly communicating with short-term tenants, their requests, questions, possible damages, and more can be tiring, especially if you are not in Cyprus yourself. Hiring a property manager or management company may be an option to consider. This may lower your margin a little bit but also frees up your personal time and energy to focus on other ventures of your life and business.
Have I considered all aspects of the ROI?
To determine the ROI of your investment property, and the estimated break-even period, estimate the following:
- Annual rental income (e.g. estimate based on comparable short-term rental properties in your area)
- Annual operating expenses (utilities, repairs, property management fees, insurance, taxes, mortgage/interest payment, homeowners association fee, advertising cost, cleaning cost, legal fees, depreciation, cushion for unforeseen expenses)
With this information, you can create a forecast of your annual cash flow. You can create a “best case” and “worst-case” scenario. The ROI is then determined by dividing the annual cash flow by the total investment amount.
Buying an Investment Property to Rent in Cyprus – The Takeaway
Buy to let (rent out) real estate in Cyprus to holidaymakers and business people short-term can be a lucrative investment opportunity. We have broken down how to get a rental license for your property in Cyprus, which is required by law if you are renting out your property short-term via Airbnb and similar platforms.
You have become aware of the applicable taxes for real estate rental income and the average investment property prices and the expected ROI in Cyprus. Property Experts Cyprus offers a large variety of attractive apartments and houses for sale in the most sought-after regions of overseas real estate investors.
Benefit from one-touch access to countless real estate developers and agencies on the island. Receive special associate discounts and simply feel at home. We offer our services in English, German, Chinese, and Greek language. Contact the Cyprus real estate specialists at Property Experts Cyprus today to redeem your FREE consultation!
Disclaimer: The information in this article on buying an investment property to rent has been researched to the best of our knowledge and is dated Q2/2022. Legislation may change and investment tactics depend on your specific personal situation and knowledge. Therefore, this article may NOT be construed as investment or financial advice.