Thanks to its warm weather, low cost of living, and beautiful beaches and countryside, Portugal has become an incredibly desirable place to own a holiday home or vacation rental, particularly in areas like Lisbon, Porto, and the Algarve. It’s also home to some of the best golf courses in the world, many undiscovered wine regions, and often has cheap flights from destinations like the UK, Germany, and the Netherlands. If you’re looking for a property to add to your portfolio, Portugal is definitely somewhere to consider.
Buying property in Portugal has a few challenges, and there are often structural and legal issues that you need to look out for. A buyer’s agent (an agent that represents the buyer) can help you avoid these pitfalls and, due to the way commissions are split among estate agents in Portugal, this is typically at no extra cost to you.
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Mortgage Amount 800,000 €
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Mortgage Rate 3.6%
Yield for this property is over 5%
Yield for this property is 3-5%
Yield for this property is below 3%Researching the market
The Algarve, Lisbon, and Porto are the most popular parts of Portugal for tourists, but there are definitely other parts of Portugal to consider. Focusing on regions that have large international airports is a good place to start. These are:
- Faro Airport (Algarve)
- Lisbon Airport
- Porto Airport
- Madeira Airport
- Ponta Delgada Airport (São Miguel, Azores)
(There are other airports in Portugal, but they’re much smaller and less international)
Another starting point is looking at the most popular destinations for tourists visiting Portugal. There are a lot of “top 10 places to visit in Portugal” articles, which can be useful for skimming to see where is recommended most (although be aware they are often written by freelancers who may not have visited all of these destinations). Popular destinations (in no particular order) include:
- Lagos (Algarve)
- Albufeira (Algarve)
- Faro (Algarve)
- Funchal (Madeira)
- Évora (Alentejo)
- Porto
- Lisbon
- Ericeira
- Sintra
- Coimbra
- Aveiro
- Óbidos
- Parque Natural da Serra da Estrela
- Parque Nacional da Peneda-Gerês
- Braga
- Guimarães
Each of these locations is different (beach-focused vs city-centre, for example) and attracts a different type of clientele and will have different occupancy rates during the year. You’ll need to decide which area best suits your budget and the type of client you’re trying to attract.
Of course, if you’re thinking about spending some time in the property yourself, you may have already decided on a location – perhaps a villa in the Algarve or an apartment in Lisbon.
Finding Properties
The most popular property website in Portugal is Idealista.pt. There isn’t one property website that covers everything so once you really begin your property search, you’ll want to pay attention to multiple sites (or get your buyer’s agent to). Even if you visit all of these sites, your search may not pick up everything as many agents only list a few of their properties.
Other property websites include:
Estimating Rental Yields
Once you’ve narrowed down on a potential destination, and have an idea of how much properties there cost, you’ll want to estimate how much you can earn in rental fees.
As Airbnb.com and Booking.com are the main websites for finding vacation rentals, these are good sites to use for research. There are even sites like AirDNA or PriceLabs that analyse the data for you and do all the hard work, making it easy to compare daily rates, occupancy rates, and seasonality between different destinations. Naturally, these tools should be seen as a guide.
Other costs
There are other costs to consider, such as utilities and insurance, but three of the bigger ones are taxes, property management costs, and furnishing.
Taxes
According to Blevin Franks, “Portugal residents pay tax on rental income at a flat rate of 28%. You can add rental income to your other income for the year so it is taxed at the normal scale rates. However, this is unlikely to be beneficial if you pay tax at anything other than the lowest tax rate, currently 14.5%. Non-residents pay tax at 28%; the letting agent must deduct this from the gross rent.” [1]https://www.blevinsfranks.com/property-tax-in-portugal/
Maintenance expenses and municipal property tax (IMI) may be deducted from rental income if they are documented. [2]https://www.blevinsfranks.com/property-tax-in-portugal/
Airbnb has a document from 2018 with lots of useful information.
Another consideration, which may not be for a few years, is capital gains tax when you decide to sell the property.
Property management
If you aren’t going to manage the property yourself, you will need to factor in the costs of using a property management company like GuestReady to take bookings, arrange cleaning, and deal with any repairs. The cost of using GuestReady, for example, starts at 20% + VAT. Quinta Property, similarly, suggests that you should expect to pay around 20% + VAT, which is around 6%. Some individuals and companies specifically focus on Airbnb and, besides arranging the cleaning and guest check in, also offer services like listing optimisation, posting guest reviews, and arranging a photographer. CohostMarket suggests that typical commissions are somewhere between 20% and 30%.
Furnishing
At least in the beginning, you’ll need to furnish the property with all of the essentials – from beds and sofas to cutlery and crockery. IKEA is a popular choice, and often the easiest option, especially as there are now several IKEA stores in Portugal. However, it’s not the only choice and you can ensure your property stands out that little bit more if you consider picking up some of the main pieces at some of the other furniture stores in Portugal.
The buying process
The buying process in Portugal is similar to other countries: you find a property you like, make an offer, put down a deposit, and then sign the deeds.
However, there are a few small differences. One is the CPCV or promissory contract, which is typically non-refundable if you pull out (but you get double your deposit if the seller pulls out).
Mortgages
The concept of a buy-to-let or residential property mortgage doesn’t really exist in Portugal. What this means is that you can’t get a mortgage based on projected future income; you have to be able to make the monthly payments based on your current income. On the plus side, it also means that you generally don’t need special permission from the bank to rent out a property with a mortgage.
Mortgages are typically provided by a Portuguese bank rather than a bank overseas. Deposit amounts vary depending on whether you’re a resident or not. A mortgage calculator combined with a mortgage broker will help you estimate your spending power, but as a starting point:
- Residents can normally get a mortgage with a deposit of 20%, but sometimes as low as 10%.
- Non-residents typically need 30%, but sometimes it can be lower.
As well as the deposit or downpayment, you will need to factor in buying costs which typically amount to somewhere between 6% and 8% of the property purchase price. As this has to be paid with cash rather than financed through the mortgage, this means that, as a guideline, you should consider having cash of around 28% of the property purchase price if you’re a resident and 38% if you’re a non-resident.
Residency
Owning a property in Portugal, whether that’s your main residence or a rental property, doesn’t automatically make you a resident. Those that hold a non EU/EEA passport can typically spend 90 in every 180 days in Portugal and if you want to stay longer, you should consider a residency visa such as the golden visa, D7, or D2. Those from the EU/EEA can stay for longer and can obtain residency fairly easily, but should apply for residency after three months.
There is a way that those from outside the EU/EEA/Switzerland can combine buying a rental property and obtaining residency in Portugal and that’s through the golden visa. This visa offers residency in return for purchasing a qualifying property in Portugal, which typically has to cost €500k but can cost as little as €280k if it meets certain criteria.
Besides offering the opportunity to apply for permanent residency and Portuguese citizenship after just five years, which most residency visas also offer, the main selling point of the golden visa is that you only need to spend an average of seven days per year in Portugal to meet the temporary residency requirements.
The golden visa brings its own fees, but it can be worthwhile as it can offer a pathway to a Portuguese passport while at the same time providing you with an income from a rental property.
Licences
You will typically need an alojamento local licence to rent out your property on a short-term basis. Some places, like Lisbon, have begun restricting these as the sheer number of holiday rentals created local housing shortgages, so be sure to check you are likely to get an alojamento local licence before signing anything.
Advertising the property
There are a whole host of property booking websites, but the two most popular are Booking.com and Airbnb.com. Both Airbnb[3]https://www.airbnb.co.uk/help/article/1857/airbnb-service-fees and Booking.com[4]https://partner.booking.com/en-gb/help/commission-invoices-tax/commission/understanding-our-commission take a commission, and you will need to factor this in when setting your prices. To succeed at both you need plenty of great reviews, and to attract your first customers and get those reviews you may need to set your prices lower initially.
Although the most popular, these aren’t the only two sites. Other websites include VRBO, hotels.com, Plum Guide, and Tripadvisor Vacation Rentals.
