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How to invest in property in Portugal and get above average returns

25 de July, 2019

How to invest in property in Portugal and get above average returns

Discover how to invest in real estate in Portugal and achieve above-average returns. Find tips and useful information in this comprehensive guide.
Reading: 9 min

Have you invested in CDB in a Brazilian bank? Check out last year’s income. He’s waning, isn’t he? And the trend is just getting worse. Investing in fixed income no longer guarantees anyone’s future. Receiving net interest, after the tax bite, of 5% per annum with 4% inflation actually means earning a measly 1% per annum in real terms. It would take 69 years to double the capital! One of the solutions is to invest in real estate in Portugal, because it yields much more than the old CDB (Bank Deposit Certificate), more than real estate in Brazil and more than in any country in Western Europe.

Learn below how to invest in the Portuguese real estate market, the best investment sectors, how to calculate expenses and profits and if it is worth it. If you want to talk to an expert click here.

Investing in real estate in Portugal: a profitable real estate market

It is possible to achieve the much desired and now missed 1% per month by investing in real estate in Portugal. It’s not every day, but it’s doable. It requires a bit of searching and selection and sensible decisions. We must consider the expressive valuation of real estate whose dividends do not stop growing, because the revenues, mainly from tourism, also continue at an increasing pace.

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Portugal is a liquid market

There is nothing more satisfactory than to invest in a market with liquidity and rising prices like the one in Portugal today. Among the various reasons for this success we highlight safety, hospitality, climate, taxes, diversified tourist offer and low costs.

Find a country that combines these six strengths and you will have the WARRANTY of a solid and active real estate market. Tourists will need sleeping beds and immigrants will need houses to live in. Local residents earn more and also buy more real estate. Simple as that.

Portugal’s value proposition, that is, the relationship between how much the country delivers and what it charges, is one of the best in the world. It’s a high-level competitive positioning.

how to invest in property in Portugal rentals

Source: Atlantic Bridge / Fipezap / Global Properties

No wonder real estate prices reacted so strongly. According to the National Institute of Statistics, the historic centres of Lisbon and Porto have appreciated by 72% since 2016.

So it’s better to buy a house in Portugal in the Algarve, Lisbon or Porto? I’ll explain everything in this article, check it out.

Do you need help? Click Here To Talk To Us >

Incentive programs to invest in real estate in Portugal

Both the Golden Visa program and the non-habitual resident program have attracted many investors and high-income professionals to the country. After 5 years of investment it is also possible to apply for Portuguese citizenship.

How to invest in real estate in Portugal? See the best options

1. Tourist accommodation (local accommodation)

With revenues growing 70% since 2011, tourism already makes up 10% of Portuguese GDP, being a major source of revenue for real estate business. The average occupancy of properties intended for short-term rental (local accommodation) in the main tourism centers is 78% for average daily rates of 127 euros in Lisbon and 105 euros in Porto, according to INE.

The rent is achieved through market places (platforms) such as AirBnB and Booking that charge commissions between 3% and 15%. The management of the property can be totally outsourced with a team that takes care of from setting prices to washing the sheets, which will charge between 20% and 30% of revenues.

The additional costs are for consumption (water, electricity and gas), TV and internet, IMI (similar to IPTU), condominium, insurance and maintenance. Income tax is charged in a system similar to the presumed Brazilian profit, when the exploitation is through individuals.

Real Example ProfitabilityAnnual
Daily75€
Occupation80%
Monthly Accommodation Revenue1.800€
(+) Cleaning fee and other expenses108€
Monthly billing1.908
(-) Consumption (water, electricity, gas, condominium, IMI, insurance, internet, TV)– 209€
(-) Maintenance41€
(-) Commission Platform-153€
(-) Management, Cleaning, Washing-477€
(-) Taxes-167€
(=) Profit861€
Property Acquisition155 thousand €
Gross return % per year15%
Net return % p.a.7%

The potential return on investment should be managed taking into account four main decisions: location, management, taxation and initial state of the property.

Each city, neighborhood and street has a different relationship between daily living and expected occupation and the purchase price of the property. For example, real estate in Lisbon is 80% more expensive than Porto, but the average daily rate is only 20% more expensive.

property Portugal
Source: Atlantic Bridge / Fipezap / Global Properties. Source: Atlantic Bridge / Fipezap / Global Properties

The same differences can be seen between neighborhoods and streets in the same city, and it is up to the investor to make the best choices.
The management of a property by a third party costs on average 25%, making the management decision itself extremely advantageous, opening the possibility of an even greater return.

Unretired real estate can be good opportunities

In relation to taxation, real estate located within urban regeneration areas (ARUs) has an income tax rate about 40% lower.
Finally, investing in a property in need of renovation will reduce the purchase price and ultimately help the total return on investment.

Know the 12 obstacles to overcome to buy a house in Portugal.

2. Student Properties

Only 12% of the 113,813 students who study away from home are served by government housing in Portugal, the rest have to turn to a market where there is not enough new supply.

The equation is simple to understand. Even if all new residential, tourist and student buildings were directed exclusively to the student market, it would still not be enough. In Porto alone and in the student market alone, there were 3,000 new students last year for a total of 2,200 units to be built.

The student market is extremely resilient. Education can’t wait. Parents do everything they can to get the best option that their pocket allows. The size of the student market has never fallen below the level reached after the country entered the European Union.

The reference market place is Uniplaces which charges a commission of 8%. The management of the property is simpler, because there are no daily demands of guests and the collection will be between 10% and 15% of revenues.

The costs of water, electricity, gas can be paid by the tenant, leaving the payment of internet, IMI (similar to IPTU), condominium, insurance and maintenance. The income tax is a single rate of 28% on revenues minus some deductible expenses when the exploitation is through individuals.

Real example of student accommodationValues
Rent per room375€
Rooms5
Monthly rent1.875€
(-) Condominium, IMI, Insurance, Internet, TV, Maintenance– 150€
(-) Platform Commission– 150€
(-) Management– 188€
(-) Taxes– 394€
Profit994€
Investment200 thousand €
Gross return per year11%
Net return per year6%

3. Residential properties for rent

With the great demand of investors and foreigners and many years without launching new properties, Portugal lives the perfect storm for those looking for a property to rent in major centers such as Porto, Lisbon and the Algarve.

Although the demand for residential rental is not explosive, it finds practically non-existent supply. A property is often rented on the same day it is advertised.

The market places are the traditional ones like Imovirtual, Idealist and OLX that are for free.

The management of the property is the simplest of all and charges 10% of revenues. The expenses of water, electricity, gas are at the expense of the tenant, leaving the payment of internet, IMI (similar to IPTU), condominium, insurance and maintenance. The income tax is a single rate of 28% on revenues minus some deductible expenses when the exploitation is through individuals.

Actual Example of Residential RentValues
Monthly rent750€
(-) Condominium, IMI, Insurance, Maintenance-110€
(-) Management-75€
(-) Taxes-41€
(=) Profit 525€
Investment200 thousand €
Gross return per year5%
Net return on investment3%

4. Other options

There are also other investment options such as hotels, offices, commercial real estate (shops and large businesses).

Do you want to know more information about how much a house costs in Portugal? Read this article.

Gains in valuation to invest in real estate in Portugal

The simplest strategy to take advantage of a vigorous market is to buy a property in Portugal and wait for appreciation. It is a business of low complexity and that high probability of success in the current moment of the Portuguese real estate market.

Properties in the plant

The purchase of a property in the plant embodies the valuation arising from the basic rule that the closer the delivery, the more valuable a property will be.

The price difference between a vacant lot and a ready and operating property is between 25% and 60% in Portugal. In a heated market, a quality project priced fairly for purchase at the plant will have a potential for appreciation between 10% and 25% on delivery.

The advantage is that the investor can pay in installments and only pay 50% of the property to have access to 100% of the valuation. It’s a way of leveraging the results.

Renovation and construction

The prospect of return becomes even more interesting when the investor proposes to face the work. Be a developer in Europe, buy buildings and land, approve projects, touch construction and sale and capture even more value.

It is a more demanding activity in terms of capital and expertise, but with fantastic results in hard currency.

Buying a plot of land or building to renovate will give margins of around 15% to 30%, which in itself is very good. To make the result even more attractive, it is perfectly possible to obtain financing of up to 100% of the construction, even though banks generally do not finance the investment in the land, providing returns above 100%.

Financing

Portuguese banks are very familiar with foreign clients. The procedure for opening accounts is extremely simple and the granting of real estate financing in Portugal to non-residents is very common.

Competition between banks is intense, so it is worth checking which bank is offering the best conditions for your particular case.

Costs generally include the basic rate, known as Euribor – equivalent to the Selic, an additional interest rate, known as the spread, plus life and property insurance costs and administrative fees. When hiring, they also include property and credit valuation fees.

The percentage financed varies from 60% to 90% of the acquisition value of the property, depending on the credit profile, the use of the property – investment, first, second or third residence, place of residence and the value of the evaluation of the property.

The Brazilian non-resident can count on financing of 60% to 70% of the acquisition with spreads of around 1.5% per year and a maximum term of 30 years in the current market conditions.

With such low costs is a great business to finance real estate investment in Portugal. This is a recommended way of increasing the return on capital employed. A property that has a net return on the value of the property of 7%, in 70% with interest of 1.5% year, would raise the return of the invested capital to 15% per year, an enviable number anywhere in the world.

Return on investing in real estate in Portugal, is it good?

Of course it’s good. It is better than the applications in the old CDB, it is better than investing an apartment to rent in Brazil, it is better than investing in the main countries of Europe and has the opportunity to get 1% per month or more over the invested capital.

And it’s safe. The tourism that drove Portuguese real estate came to stay. Portugal has undergone a paradigm shift and there will continue to be interest in a country that is safe, interesting and cheap. Therefore, it is worth investing in real estate in Portugal.

However, it is necessary to understand the real estate market and also investments abroad. If you have no experience, we recommend that you do everything with the guidance of a consultant. Our company has helped many Brazilians to make investments in Portugal. Make your quotation of the service without compromise. Click here for more information and details please contact us.

Check also a step by step guide to buy property in Portugal.

Article published on the Euro Tips website: https://www.eurodicas.com.br/investir-em-imoveis-em-portugal/

Author: Marcio Fenelon
Real Estate Investment

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