Holiday Rentals or Permament Living - ROI Showdown

When looking at Tenerife properties, especially in Tenerife South and Costa Adeje, one of the most common questions investors ask is simple: should you buy for holiday rentals or for permanent living? Both options can be profitable, but the returns are very different. Let’s look at the numbers and see which option brings the best ROI.

Property Prices in Tenerife South

The property market in Tenerife South has been growing steadily. In Costa Adeje, the average price per square meter is now around €4,300, with prime locations reaching as high as €5,000–€6,000. Compared to 2020, prices are up by more than 10%. Across the Canary Islands, property prices increased by almost 18% between April 2024 and April 2025.

Even within Tenerife South, there are differences. In October 2024, Costa Adeje averaged €4,731 per square meter, which was 3.7% higher than the year before. In nearby Callao Salvaje and Playa Paraíso, prices rose even faster, about 12.1% year on year, reaching €3,909 per square meter. This shows that capital appreciation is strong, and buying in the right area can add long term value to your investment.

Returns from Holiday Rentals

Holiday rentals in Tenerife South continue to perform strongly thanks to year-round tourism. A two-bedroom apartment in Costa Adeje can bring in around €37,500 gross income per year, assuming about 250 occupied nights. After costs such as cleaning, utilities, and taxes, the average net annual profit is close to €12,875.

In terms of yield, this usually works out to around 5–8% net return. Some luxury villas perform even better, reaching yields of 6% or more. Exceptional cases, especially during peak seasons, have shown gross returns of 10–15% with net returns between 5 and 8%.

Airbnb data shows just how strong this market is. In Costa Adeje, a median three-bedroom property priced around €474,000 can generate €54,634 per year in holiday rental income. That equals a gross yield of 11.5%. In Playa de las Américas, the yield is even higher, reaching almost 13%.

Returns from Permanent Living

The returns from long-term rentals are lower but more stable. Across Tenerife, studios typically give gross yields of about 5.4%. One bedroom apartments average 5%, while two-bedroom homes sit around 4.8%. Once expenses are deducted, the net yield is usually closer to 3–4%.

While this is below the potential of holiday rentals, permanent tenants provide steady income and fewer management challenges. There are no weekly turnovers, fewer maintenance demands, and less risk from regulatory changes.

Comparing the Two Options

When comparing directly, the difference is clear. Holiday rentals in Costa Adeje and Tenerife South can achieve net yields of 5–9%, with some properties going beyond 10% gross. Permanent rentals usually offer around 3–4% net.

The trade-off is stability versus profitability. Holiday rentals require more management, involve seasonal variations, and depend on the strength of Tenerife’s tourism market. Permanent rentals are easier to manage but bring lower returns.

Risks and Considerations

Investors should also keep in mind that holiday rentals are under discussion for stricter regulation. Some rules may involve zoning limits or energy efficiency requirements for licenses. At the same time, tourism in Tenerife is consistent throughout the year. Winter months are the strongest, but even summer and shoulder seasons maintain high occupancy.

There is also the social factor to consider. Rapid growth in short-term rentals has raised concerns about affordability for local residents. Any regulatory changes in the future could influence returns.

Final Verdict

If your goal is to maximize return on investment, holiday rentals in Tenerife South especially in Costa Adeje offer the strongest potential. The combination of year-round tourism and rising property prices means higher yields and capital growth.

If you prefer long-term stability, permanent living properties are safer, simpler, and still benefit from steady appreciation in value. The choice depends on whether you value higher profit or easier management.

Ready to Invest in Tenerife Properties?

Whether you are interested in high-yield holiday rentals or a permanent home in Tenerife South, working with the right partner makes all the difference. Contact 4Life Properties today. As a trusted Tenerife real estate agent, we will guide you through the market in Costa Adeje and beyond, helping you find the property that matches your investment goals.