If you own a property in Madeira and are thinking about renting it out, one of the first decisions you will face is who you want as your tenant. On the surface, it seems simple. Tourists bring higher nightly rates, locals bring stability. But the reality is more nuanced, and the choice you make will shape your income, your stress levels, and the long-term performance of your property.
This article breaks down the key differences between short-term tourist rentals and long-term local rentals, so you can make an informed decision about what works best for your situation.
What Is the Actual Income Difference?
This is where most property owners start, and for good reason.
With a short-term tourist rental, you are charging per night. In Madeira, a well-positioned T1 or T2 apartment in Funchal can command anywhere from €80 to €200 per night depending on the season, the quality of the listing, and the platform. During peak periods like New Year, Easter, the Flower Festival or summer, rates can push even higher. Over a full year, a well-managed short-term rental with solid occupancy can generate two to three times the income of the same property rented to a local tenant on a fixed monthly basis.
A long-term rental in Funchal for a comparable T2 might sit between €1000 and €2000 per month depending on location and condition. That is predictable, consistent income, but it is also capped. There is no upside in high season, no ability to adjust rates when demand spikes, and no opportunity to capture the premium that Madeira’s growing tourism market is willing to pay.
The income gap between the two models is significant, and it continues to widen as Madeira attracts more visitors each year.
Occupancy and the Risk of Empty Nights
Higher nightly rates only matter if guests are actually booking. This is where some property owners get nervous about short-term rentals, and it is a fair concern.
A long-term tenant pays every month, regardless of whether it rains or whether there is a slow week in February. That predictability is genuinely valuable, particularly for owners who rely on rental income to cover mortgage payments or fixed costs.
Short-term rentals, by contrast, require active management of occupancy. Listings need to be optimised, pricing needs to track demand, and the property needs to maintain strong reviews to stay competitive. Done well, a short-term rental in Madeira can achieve occupancy rates of 75 to 90 percent across the year, which more than compensates for the nights it sits empty. Done poorly, or left unmanaged on a flat-rate listing, it can underperform badly.
The critical factor is not the model itself, it is the quality of management behind it.
Madeira also has a structural advantage here. It is one of the few European destinations with genuine year-round tourism. The island does not have a dead season in the way that many coastal or summer-only destinations do. Digital nomads fill the quieter winter months, cruise passengers cluster around New Year, and European holidaymakers arrive consistently from spring through autumn. This reduces the vacancy risk that makes short-term renting unattractive in less consistent markets.
What About the Stability Argument?
Long-term renting is often sold as the safer, simpler option. And in some respects, it is. You sign a contract, you receive a bank transfer each month, and you largely leave the property alone. For owners who live abroad or who simply do not want to think about their property day to day, that simplicity has real appeal.
But stability cuts both ways. A long-term tenant also means less control. Under Portuguese tenancy law, removing a tenant who stops paying or causes damage is a slow and often frustrating process. If your property is tied to a problematic tenant, you may spend months navigating legal procedures while receiving no income at all. The security of a fixed monthly payment disappears quickly when that payment stops arriving.
Short-term guests, on the other hand, are gone in a matter of days. If one booking goes badly, the next is a fresh start. There is no accumulation of debt, no legal process to navigate, and no long-term obligation on either side. The property is inspected and cleaned between every stay, which also means issues are caught early rather than discovered months later when a tenant finally moves out.
The Madeira Context
Madeira is not a typical rental market. The island has seen consistent growth in tourism over the past decade, and short-term rental demand has grown with it. At the same time, the long-term rental market in Funchal faces its own pressures, with supply limited and many landlords choosing short-term lettings precisely because the returns are stronger.
For property owners in Madeira, the question is not really whether tourists or locals pay more. The data is fairly clear on that. The real question is whether your property is set up to capture that income consistently, and whether you have the right support in place to manage it without it becoming a second job.
A well-run short-term rental in Madeira, with professional photography, optimised listings, active pricing and reliable guest communication, will outperform a long-term rental on almost every financial measure. The difference between a short-term rental that works and one that does not usually comes down to how it is managed.
Ready to Make Your Property Work Harder?
At Madeira Estate, we manage short-term rentals across Funchal and the wider island, handling everything from listings and guest communication to pricing, cleaning coordination and owner reporting. If you are considering renting your property and want to understand what it could realistically earn, get in touch with us. We are happy to walk you through the numbers with no obligation.
