Long-Term vs. Short-Term Rentals in Arequipa: A Risk and Reward Analysis for Foreign Investors

As a licensed Peruvian real estate broker specializing in the Arequipa market, I frequently guide foreign investors through the intricacies of property ownership and income generation in our vibrant city. One of the most critical decisions you will face after acquiring a property in Arequipa is whether to target the long-term or short-term rental market. Each strategy presents a unique set of risks, rewards, and operational demands, profoundly influenced by local laws and market dynamics. This analysis will provide a comprehensive, experience-driven perspective to help you make an informed decision.

Understanding the Arequipa Rental Landscape

Arequipa, the "White City," attracts a diverse array of residents and visitors. Our UNESCO World Heritage Historic Center draws international tourists, while its growing economy and prestigious universities (like Universidad Nacional de San Agustín) attract local professionals and students. Additionally, Arequipa is increasingly a destination for expatriates seeking a high quality of life at a reasonable cost.

Long-Term Demand: Predominantly driven by local families, professionals, university students, and long-stay expatriates seeking stable, residential living. Neighborhoods like Yanahuara, Cayma, and José Luis Bustamante y Rivero are highly sought after for their amenities, safety, and community feel.
Short-Term Demand: Largely fueled by tourism (both national and international), business travelers, and individuals visiting for short stints. Properties in the Historic Center, San Lázaro, and areas close to major attractions or business districts perform well in this segment.

Long-Term Rental Strategy in Arequipa

Investing in long-term rentals (typically contracts of one year or more) often appeals to those seeking stability and less hands-on management.

Advantages:

Stable Income Stream: Predictable monthly rental income with fewer fluctuations once a tenant is secured.
Lower Turnover Costs: Reduced frequency of marketing, cleaning, and administrative tasks associated with new tenants.
Less Intensive Management: Once a good tenant is in place, daily operational demands are significantly lower.
Reduced Wear and Tear: Tenants often treat a long-term home with more care than short-term guests, reducing maintenance frequency.
Peruvian Tax Simplicity: Generally, income tax (Impuesto a la Renta) is applied to rental income, usually at a rate of 5% of the gross monthly rent (or 6.25% of the imputed income if paid quarterly) for individuals, reported via SUNAT Form 1683. This is typically simpler than commercial operations.

Disadvantages:

Lower Yield Potential: Monthly rent, while stable, is generally lower than the aggregate income achievable from short-term rentals in prime locations.
Tenant Eviction Challenges: Peruvian law, specifically the Código Civil, offers significant protection to tenants. Eviction processes, even for non-payment, can be lengthy, costly, and legally complex without proper contractual safeguards.
Property Vacancy Risk: While less frequent, a vacant long-term property can mean extended periods without income.
Limited Flexibility: Once a contract is signed, the property is tied up for the duration, limiting personal use or quick sales.

Legal & Practical Considerations for Long-Term Rentals:

Formal Rental Contracts: Always execute a formal, written rental agreement (contrato de arrendamiento) with a notary public. For enhanced legal enforceability, particularly regarding swift eviction processes (known as desalojo express under Law 30913), ensure the contract includes a specific express eviction clause signed before a notary. While direct registration of all residential lease agreements with S.U.N.A.R.P. (National Superintendency of Public Registries) isn't strictly mandatory for validity, a notarized contract provides significantly stronger legal standing.
Tenant Screening: Thoroughly vet potential tenants. Request proof of income, references, and a copy of their DNI (Peruvian ID) or passport. For foreign tenants, verify their legal residency status.
Security Deposit: Typically, a deposit equivalent to one or two months' rent is collected. Clearly outline in the contract the conditions for its return or retention.
Property Management: Consider hiring a local property manager, especially if you reside abroad, to handle rent collection, maintenance, and tenant issues.

Short-Term Rental Strategy (Vacation Rentals) in Arequipa

Short-term rentals (e.g., via platforms like Airbnb, Booking.com) are popular for their higher earning potential, especially in tourist hotspots.

Advantages:

Higher Income Potential: Daily or weekly rates can generate significantly more revenue than long-term rentals, particularly during peak tourist seasons.
Flexibility: Allows for personal use of the property when not rented out, and easier adaptation to market changes.
Easier "Eviction": If a guest violates terms, their departure is usually straightforward at the end of their booking. Tenant protection laws for long-term leases do not typically apply.
Market Responsiveness: Ability to adjust pricing quickly based on demand, events, or seasonality.

Disadvantages:

Variable Occupancy & Income: Income is highly dependent on tourism trends, seasonality, and effective marketing. Vacancy rates can be high during off-peak periods.
Higher Operational Costs: Requires frequent cleaning, linen services, utility management, guest amenities, and often more extensive maintenance due to higher traffic.
Intensive Management: Demands constant attention for bookings, check-ins/outs, guest communications, and problem-solving. This is a significant time commitment.
Regulatory Scrutiny: While MINCETUR (Ministry of Foreign Trade and Tourism) specifically regulates formal lodging establishments, individual apartment rentals via platforms like Airbnb often fall into a regulatory grey area at the national level. However, it is crucial to understand that operating any commercial activity within your property, including short-term rentals, requires adherence to local municipal regulations. This means obtaining municipal licenses or permits (licencia de funcionamiento) based on zoning, safety codes (e.g., Defensa Civil inspections), and declaring the activity to the municipality and SUNAT.
Increased Wear and Tear: A higher volume of guests generally leads to faster depreciation of furnishings and fixtures.

Legal & Practical Considerations for Short-Term Rentals:

Municipal & Tourism Permits: While MINCETUR (Ministry of Foreign Trade and Tourism) specifically regulates formal lodging establishments, individual apartment rentals via platforms like Airbnb often fall into a regulatory grey area at the national level. However, it is crucial to understand that operating any commercial activity within your property, including short-term rentals, requires adherence to local municipal regulations. This means obtaining municipal licenses or permits (licencia de funcionamiento) based on zoning, safety codes (e.g., Defensa Civil inspections), and declaring the activity to the municipality and SUNAT.
Tax Implications: Rental income from short-term operations is often viewed as business income. This can mean higher Impuesto a la Renta rates (depending on your tax regime as a business), and potentially IGV (General Sales Tax/VAT) of 18% if your annual income exceeds certain thresholds or if you register as a formal business. Consult a local accountant.
Marketing Platforms: Utilize popular platforms like Airbnb, Booking.com, and VRBO, but also consider local options and direct marketing.
Guest Management: Implement efficient systems for bookings, payments, check-ins/outs (often requiring someone on-site), and responding to guest inquiries 24/7.
Insurance: Obtain appropriate property and liability insurance to cover damages, theft, and guest accidents.
Local Service Providers: Establish reliable contacts for cleaning, maintenance, and emergency repairs.

Risk and Reward Analysis: A Head-to-Head Comparison

Feature	Long-Term Rentals	Short-Term Rentals
Income Stability	High (predictable monthly rent)	Variable (depends on occupancy, seasonality)
Potential Yield	Lower per month	Higher potential per month (if well-managed)
Management Effort	Low to Moderate (after tenant is placed)	High (constant guest interaction, cleaning, maintenance)
Legal Risk (Tenant)	High (difficult, lengthy eviction process)	Low (guests depart after booking)
Operational Costs	Low (utilities often paid by tenant, minimal cleaning)	High (cleaning, amenities, utilities, marketing)
Property Wear/Tear	Moderate	Higher (due to frequent turnover)
Flexibility	Low (property tied up by contract)	High (can use property when vacant)
Target Audience	Locals, long-term expats, students	Tourists, business travelers, short-stay visitors
Ideal Location	Yanahuara, Cayma, José Luis Bustamante y Rivero	Historic Center, San Lázaro, central areas
Tax Complexity	Simpler (fixed income tax)	More complex (business income, potential IGV)

Step-by-Step Decision-Making Process for Your Arequipa Investment:

Define Your Investment Goals: Are you seeking steady, passive income, or are you willing to actively manage for potentially higher returns? Is capital appreciation your primary focus, or cash flow?
Assess Your Risk Tolerance: Can you stomach periods of low occupancy or potential legal battles with problematic tenants?
Evaluate Property Location & Suitability: Is your property in a prime tourist area or a residential neighborhood? Does it lend itself well to short-term amenities (e.g., multiple bathrooms, appealing decor) or long-term living (e.g., ample storage, quiet neighborhood)?
Research Local Regulations Thoroughly: Do your due diligence on municipal zoning, potential tourism permits, and, critically, Peruvian tenant protection laws.
Project Financial Returns: Create detailed financial models for both scenarios, factoring in potential income, all associated costs (taxes, management fees, maintenance, utilities, cleaning), and vacancy rates.
Consider Professional Management: For foreign investors, especially those not residing in Arequipa, a reliable local property manager is almost essential for either strategy, though more so for short-term rentals.

⚠️ Local Context & Critical Warnings for Foreign Investors

S.U.N.A.R.P. & Notary Process: All property titles and major transactions MUST be registered with S.U.N.A.R.P. and executed via a Notario Público (Notary Public). This is the bedrock of secure property ownership and lease enforcement in Peru. Never bypass this.
Peruvian Tenant Protection Laws: For long-term rentals, understand that Peruvian Código Civil is generally pro-tenant. Traditional eviction for non-payment requires a formal legal process (desalojo) that can take many months, even with well-drafted contracts. To mitigate this significant risk, investors should utilize the Ley de Desalojo con Intervención Notarial (Law 30913, known as "Desalojo Express"). This law allows for a significantly faster eviction process, but it critically requires the rental contract to include a specific express eviction clause, signed and legalized before a Notary Public at the time of signing.
Historic Property Rules: If your property is within Arequipa's Historic Center (a UNESCO World Heritage site), you will be subject to strict municipal regulations regarding renovations, modifications, and even external appearance. This can impact both your ability to furnish for short-term appeal and maintenance costs for long-term rentals.
Tax Compliance is Non-Negotiable: Peruvian tax authority (SUNAT) is increasingly scrutinizing rental income, particularly from foreign owners. Engage a local, reputable accountant to ensure full compliance with Impuesto a la Renta and potential IGV, avoiding penalties. Income tax on individual rental income is generally 5% of monthly rent, but commercial operations can be more complex.
Currency Fluctuations: Rental income will be in Peruvian Soles (PEN). Be mindful of the exchange rate between PEN and USD (or your home currency) as it can impact your effective returns when repatriating funds.
Security: While Arequipa is generally safe, standard security measures for your property and tenants (good locks, alarm systems, neighborhood watch engagement) are always recommended.

Conclusion

The choice between long-term and short-term rentals in Arequipa is not one-size-fits-all. It requires a careful evaluation of your personal investment goals, risk tolerance, the specific characteristics of your property, and a thorough understanding of the Peruvian legal and market environment. While short-term rentals offer the allure of higher potential income, they demand active management and navigating more complex regulations. Long-term rentals provide stability and less day-to-day oversight but come with the inherent risks of tenant disputes and lower gross yields.

Regardless of your chosen strategy, success in the Arequipa market for foreign investors hinges on diligent preparation, adherence to local laws, and often, the strategic engagement of trusted local professionals.

⚠️ Legal Notice: Consult a Local Lawyer. The information provided in this article is for general guidance and informational purposes only and does not constitute legal, financial, or tax advice. Investing in real estate in Peru involves specific legal and financial considerations. It is imperative that you consult with a qualified, licensed Peruvian real estate attorney and a local accountant before making any investment decisions to ensure full compliance with current laws and regulations.

Explore more investment opportunities and expert insights for Arequipa real estate at ArequipaRealEstate.com.