The Pros and Cons of Short-Term vs. Long-Term Rental Strategies in Arequipa's Current Market

As a licensed Peruvian real estate broker and technical writer for ArequipaRealEstate.com, I frequently guide foreign investors and expats through the intricacies of our vibrant property market. One of the most critical decisions an investor faces when acquiring property in Arequipa is determining the optimal rental strategy: short-term or long-term. This choice significantly impacts your potential returns, operational demands, and legal obligations. This article will provide an experience-driven, detailed analysis, complete with practical steps and vital legal considerations specific to Arequipa, Peru.

Understanding Arequipa's Dynamic Rental Landscape

Arequipa, affectionately known as the "White City" due to its distinctive sillar (volcanic stone) architecture, is not only a UNESCO World Heritage site but also a bustling economic and educational hub in southern Peru. Its unique blend of colonial charm, proximity to natural wonders like Colca Canyon, and growing university (e.g., Universidad Nacional de San Agustín, Universidad Católica de Santa María) and business sectors attracts a diverse pool of potential tenants. This diversity creates opportunities for both short-term tourists and digital nomads, as well as long-term residents, students, and professionals. Your property's location and characteristics will heavily influence which strategy is most viable and profitable. For example, properties within the Historic Center or adjacent areas like Yanahuara, San Lázaro, and Vallecito often excel in the short-term market due to their proximity to tourist attractions and amenities. Conversely, neighborhoods such as Cayma, Sachaca, José Luis Bustamante y Rivero, or Selva Alegre are highly sought after for long-term residential leases due to their family-friendly environment, green spaces, and access to modern conveniences.

Short-Term Rental Strategy: The High-Yield, High-Effort Approach

Short-term rentals, typically facilitated through platforms like Airbnb, Booking.com, or direct bookings, cater to tourists, business travelers, and temporary visitors staying from a few nights to a few weeks. This strategy often involves furnished properties resembling hotel-style accommodations.

Pros of Short-Term Rentals in Arequipa:

Higher Income Potential: Generally, daily rates for furnished, well-located short-term accommodations in Arequipa significantly outperform equivalent long-term monthly rents. A well-managed property in the Historic Center or Yanahuara could yield 1.5 to 3 times the gross income of a long-term lease, depending on occupancy and seasonality.
Flexibility for Owner Use: You retain the ability to block dates for personal use, family visits, or property maintenance without breaking a long-term lease agreement.
Easier Guest Management (Comparative): While not without challenges, removing a non-paying or overstaying guest in a short-term scenario is typically less legally cumbersome than evicting a long-term tenant under Peruvian law. Short-term guests are generally viewed as temporary occupants of a commercial lodging rather than primary residents.
Regular Property Checks: Frequent guest turnovers necessitate regular cleaning and inspection, which can help in early detection and resolution of maintenance issues, potentially prolonging the property's lifespan.

Cons of Short-Term Rentals in Arequipa:

Higher Operational Costs: These include frequent professional cleaning, laundry services, utilities (often included in the rate), platform commissions (typically 3-15%), amenities replenishment (toiletries, coffee, etc.), and potentially a local property manager's salary.
Intensive Management: This strategy demands constant communication with guests (often in multiple languages), managing bookings across platforms, coordinating check-ins/outs, addressing immediate issues at any hour, and handling reviews. It's a demanding commitment if not outsourced to a professional management company.
Occupancy Rate Variability: Income is highly subject to seasonality (Arequipa has distinct peak tourist seasons, e.g., during Semana Santa, school holidays, and local festivals like Aniversario de Arequipa in August), local events, economic fluctuations, and competition. There will inevitably be periods of vacancy, impacting overall profitability.
Legal and Tax Complexities: Operating a short-term rental is often viewed as a commercial activity. This typically requires registration with SUNAT (Peru's national tax authority) to obtain an RUC number, declaring income under the appropriate tax regime (e.g., Régimen MYPE Tributario or Régimen General if exceeding thresholds), and potentially charging IGV (18% Peruvian VAT) if offering "tourism services" and generating facturas electrónicas (electronic invoices). Furthermore, depending on the municipality, a Licencia de Funcionamiento (operating license) and adherence to local zoning and tourism regulations may be required, especially for properties functioning more like a small hotel or hostal.
Accelerated Wear and Tear: Higher turnover often leads to quicker depreciation of furnishings, appliances, and general property finishes, necessitating more frequent repairs and replacements.
Neighborhood Impact: Some residential communities and juntas vecinales (neighborhood associations) may object to a high volume of transient guests, leading to potential disputes over noise, security, or common area usage.

Step-by-Step: Setting Up a Short-Term Rental in Arequipa

Market Research & Pricing: Analyze comparable listings in your area on platforms like Airbnb and Booking.com. Understand seasonal demand and adjust your pricing strategy accordingly. Aim for competitive yet profitable rates (e.g., PEN 150-300/night for a well-located apartment, depending on size and amenities, which translates to approximately USD 40-80 at a typical exchange rate of ~S/3.75 PEN/USD).
Property Preparation & Furnishing: Equip your property fully, including high-quality kitchenware, fresh linens, plush towels, and basic amenities (soap, toilet paper, coffee). Consider appealing aesthetics and comfortable furniture to stand out. Essential tools include reliable high-speed Wi-Fi, and potentially a smart lock for remote guest access.
Legal & Tax Registration (Safety Check): This is critical.
- Obtain an RUC: Register with SUNAT as a business entity or as an individual with business income (Persona Natural con Negocio). This is your unique tax identification number.
- Choose a Tax Regime: Consult with a specialized Peruvian accountant (contador) to determine the most suitable tax regime. For many small-scale operators, the Régimen MYPE Tributario offers simplified compliance with scalable tax rates.
- IGV & Factura Electrónica: Understand when IGV (18%) must be charged for tourism services. If you offer services that are generally subject to IGV (e.g., lodging services beyond simple rent, or if you register under a regime that requires it), you will be required to issue electronic invoices (facturas electrónicas) to guests, especially for business travelers who require them for expense claims. Non-compliance with SUNAT regulations can lead to significant fines.
- Municipal Licenses: Inquire with the Municipalidad Provincial de Arequipa about any required Licencia de Funcionamiento or specific permits for operating tourist lodging, especially in residential areas or the Historic Center.
Platform Listing & Marketing: Create compelling listings with high-quality, professional photographs, detailed and inviting descriptions, and clear house rules (in Spanish and English). Utilize keywords that tourists search for in Arequipa.
Guest Management & Cleaning Protocol: Establish clear, efficient processes for guest communication, booking confirmations, seamless check-ins/outs, and professional cleaning services between stays.

Long-Term Rental Strategy: The Stable, Lower-Effort Approach

Long-term rentals typically involve lease agreements of one year or more, targeting residents seeking stability, such as families, students, or professionals relocating to Arequipa. This strategy prioritizes consistent, predictable income over maximum potential yield.

Pros of Long-Term Rentals in Arequipa:

Stable, Predictable Income: Once a reliable tenant is secured, you can expect a steady monthly income stream, significantly simplifying financial planning and cash flow management.
Lower Operational Costs: Reduced tenant turnover means less frequent cleaning, marketing, and fewer administrative tasks. Tenants typically pay for their own utilities (water, electricity, gas, and internet), reducing your monthly outgoings.
Less Intensive Management: After initial tenant screening and lease signing, management largely involves rent collection and addressing periodic, usually minor, maintenance requests. This is ideal for absentee owners or those preferring a more passive investment.
Lower Wear and Tear: Tenants, especially families who establish a home, tend to treat a property with more care than short-term guests, potentially leading to slower depreciation of furnishings and finishes.
Potential for Tenant Stability: Good tenants may renew their leases for many years, minimizing vacancy periods and the associated costs of finding new tenants.

Cons of Long-Term Rentals in Arequipa:

Lower Income Potential: Monthly rents are generally lower than what short-term rentals can generate. A typical unfurnished 3-bedroom apartment in Cayma might rent for PEN 1,500-2,500 (USD 400-670), whereas a similar short-term unit in the Historic Center could generate that in a week during peak season.
Tenant Screening Challenges: Thorough background checks are crucial but can be time-consuming. Peruvian law offers significant protections to tenants, making bad tenant selection a costly mistake with potentially long-lasting repercussions.
Complex Eviction Process (Safety Check): Evicting a non-paying or problematic long-term tenant in Peru can be a protracted and legally complex process (proceso de desalojo). If not handled correctly and proactively, it can take many months, or even over a year, to regain possession of your property. This is a major risk factor for foreign investors and underscores the importance of proper legal counsel and contract drafting from the outset.
Less Flexibility for Owner Use: Your property is tied up for the duration of the lease agreement, limiting personal use.
Potential for Property Neglect: While less common with good tenants, a long-term tenant might not report minor maintenance issues promptly, potentially leading to larger, more expensive problems later if not regularly inspected (with proper notice).

Step-by-Step: Setting Up a Long-Term Rental in Arequipa

Market Research & Pricing: Determine competitive monthly rent based on location, property size, condition, whether it's furnished or unfurnished, and current market demand in Arequipa.
Property Preparation: Ensure the property is in good, habitable condition. For unfurnished rentals, basic fixtures, lighting, and utilities (water, electricity, gas connections) must be functional. A fresh coat of paint and thorough cleaning are always advisable.
Tenant Screening & Background Checks (Safety Check): This is paramount in Peru.
- Financial Solvency: Request comprehensive proof of stable income (e.g., official employment contracts, recent pay stubs, bank statements, tax declarations for self-employed individuals).
- References: Contact previous landlords (if any) and employers to verify reliability and payment history.
- Credit History: While less universally robust than in some Western countries, a check of local credit databases (e.g., Sentinel, Infocorp) can provide insights into a tenant's financial standing and past defaults.
- Guarantor (Garante): It is highly advisable to request a financially solvent guarantor (garante) who can be held responsible if the tenant defaults. Ideally, this guarantor should own property in Arequipa that is registered in S.U.N.A.R.P., making them easier to trace and legally pursue if necessary.
Drafting the Lease Agreement (Contrato de Arrendamiento):
- Peruvian Law Compliance: The contract must rigorously adhere to the Peruvian Civil Code and specific rental laws (e.g., Law N° 30933 for expedited evictions).
- Key Clauses: Include explicit clauses detailing the rent amount, exact payment dates, late fees, maintenance responsibilities (clearly defining what the landlord vs. tenant is responsible for), duration of the lease, conditions for early termination, and critically, a specific clause for accelerated eviction (Cláusula de Allanamiento Futuro). This clause allows a landlord to apply for an expedited eviction order if the tenant defaults on rent or the lease expires and they refuse to vacate.
- Inventory: For furnished properties, include a detailed inventory of all items with their condition.
Notary & S.U.N.A.R.P. Registration (Essential Safety Check):
- Notarization: Always notarize the lease agreement. The lease should be signed by both parties before a Public Notary (Notario Público). This process validates the identities of the parties, ensures the authenticity of their signatures, and gives the contract stronger legal standing and evidentiary value in court. Without notarization, the Cláusula de Allanamiento Futuro cannot be invoked for an expedited eviction.
- S.U.N.A.R.P. Registration: For maximum legal protection, especially to facilitate expedited eviction procedures and protect against a property sale during the lease term, consider registering the notarized lease agreement at S.U.N.A.R.P. (National Superintendency of Public Registries). This public registration makes the lease binding on third parties and is a vital step for investors concerned about the lengthy traditional eviction processes. If your lease includes the Cláusula de Allanamiento Futuro and is properly notarized and registered at S.U.N.A.R.P., it can significantly shorten the eviction process, enabling the fast-track desalojo express. Never rely solely on a private contract, especially for long-term leases.
Rent Collection & Property Management: Establish clear, secure methods for rent payment (e.g., bank transfers). Consider engaging a local property manager for rent collection, handling tenant issues, and coordinating maintenance, especially if you are an absentee owner.
Tax Compliance: As an individual landlord in Peru, rental income is typically subject to a 5% monthly income tax on the gross rent. This is declared and paid via Form 1683 (simplified form for rental income) through SUNAT's virtual platform. An annual income tax declaration is also required. Ensure you have an RUC number for this.

Local Context & Specific Warnings for Arequipa Investors

Historic Property Rules: If your property is within Arequipa's UNESCO Historic Center, be acutely aware of strict regulations regarding renovations, facade changes, and even the type of business permitted. Any exterior modifications or significant interior structural changes require prior approval from the Ministry of Culture (Ministerio de Cultura) and the Municipalidad Provincial de Arequipa, which can be a lengthy and complex process. This is particularly relevant for short-term rentals aiming for unique aesthetics or for any property requiring significant refurbishment.
Notarization is Non-Negotiable: For any significant property transaction in Peru, especially rental contracts and property purchases, notarization by a licensed Peruvian Notario Público is not just a recommendation; it's a critical legal safety check. It ensures legal validity, authenticity, and enforceability, which is paramount in the Peruvian legal system.
S.U.N.A.R.P. – Your Legal Shield: Registering your property title (essential for ownership) and, crucially, your notarized long-term lease agreements at S.U.N.A.R.P. provides a public record and robust legal protection. This registration creates legal certainty, protects against third-party claims, and significantly aids in activating a desalojo express (expedited eviction) should the need arise. It is a fundamental step to secure your investment in Peru.
Tax Compliance with SUNAT: Whether operating a short-term or long-term rental, strict adherence to SUNAT regulations is essential. Ignorance of tax law is not a defense, and penalties for non-compliance can be severe, including fines and interest. Always consult a qualified Peruvian contador (accountant) from the outset to ensure proper registration, declaration, and payment of taxes.
Reliable Property Management: For foreign investors not residing full-time in Arequipa, a trustworthy, licensed, and experienced local property management company is indispensable for both strategies. They handle day-to-day operations, guest/tenant relations, maintenance coordination, and ensure local legal and tax compliance, providing peace of mind.
Currency Fluctuations: While some rents (especially for expats) might be quoted in USD, the Peruvian Nuevo Sol (PEN) is the legal tender. Be mindful of exchange rate fluctuations and define the agreed-upon currency and, if applicable, the conversion method in your contract to avoid disputes.

Strategic Considerations & Due Diligence

Before committing to either strategy, consider:

Your Investment Goals: Are you seeking maximum cash flow and potentially higher but more volatile returns (short-term) or stable, lower-risk income with potential for long-term appreciation (long-term)?
Your Risk Tolerance: Can you handle the income volatility, intensive management, and commercial regulatory complexities of short-term rentals, or do you prefer the predictability of long-term leases, even with their tenant screening and eviction challenges?
Capital Investment: Short-term rentals typically demand a significantly higher initial investment in quality furnishings, appliances, decor, and ongoing amenities. Long-term rentals, especially unfurnished, require less upfront capital.
Personal Involvement: Are you willing to be hands-on with daily operations and guest communication, or do you prefer a more passive investment that can be largely managed remotely?
Professional Advisory: Always engage a specialized Peruvian real estate lawyer (abogado inmobiliario) and a reputable contador (accountant) from the outset. Their expertise in Peruvian property law, tax regulations, and local market nuances is invaluable and can prevent costly mistakes and safeguard your investment.

Conclusion

Both short-term and long-term rental strategies in Arequipa offer distinct advantages and disadvantages for the discerning investor. While short-term rentals promise higher potential yields, they demand intensive management and navigation of complex tourism-related regulations. Long-term rentals, conversely, offer stability and a more passive income stream but require rigorous tenant screening and a thorough understanding of Peru's tenant-protective eviction laws. Your choice should align with your financial objectives, risk appetite, willingness to engage in property management, and available capital. Careful due diligence, coupled with expert local legal and accounting advice, is the cornerstone of a successful real estate investment in Arequipa.

⚠️ Legal Notice: Consult a Local Lawyer. This article provides general information and does not constitute legal, tax, or financial advice. Peruvian real estate law is complex and subject to change. It is imperative that all foreign investors consult with a licensed Peruvian real estate attorney and a qualified tax accountant (contador) before making any investment decisions or entering into any contracts.

For further personalized guidance on navigating Arequipa's real estate market, visit us at ArequipaRealEstate.com.