STR or nothing - Portugal

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STR or nothing - Portugal

Juan Correia
Rental Property Investor · Portugal · Member since 2018 · 61 posts · 26 votes

Hi everyone, I'm trying to get some people to understand the dynamics of small countries, as is the case of Portugal.

Ok, sure, we are part of Europe, but the honest truth is that a lot of things are just endemic to the reality of the local country and, inside the country, to the reality of the region.

To begin, we have to understand that Portugal is about 1000 miles x 300 miles in terms of territory what makes it easy to get around but, first problem, in small countries, eveything seems "far away".

Also, because we are small, the notion of "country" is different, in the perspective of those living and investing here. People are more concerned with their own small region that with the logic of a nation, in terms of nation wide needs.

Real state is not strange to this reality, and the prof is that we have incredibly different markets, even inside the cities.

The Algarve region (the south end of the country) is a great example. We have locations, whitin a few miles, that very from 1000€ (around 1.2K USD) per square meter in terms of costs, and 3, 4 and even 5 times that.

Also, in terms of rents, things are very distint even inside the same city. I know that this is no different, depending on the disctricts or the class of the neighbourhoods, however, when the total population of a region with around 300x100 miles is around 440K people, its hard to understand these variations.

Also, because the place is small, we have investors and buyers coming from everywhere to buy everywhere, but with the huge differences in income between the people living in the big cities (Lisbon, Porto) and the rest of the population, its EXTREMELY hard to find deals.

Also, i think this happened worldwide, construction prices spiked and, being small and not having that much competition, it makes it very hard to get competitive quotes... so even being small, there's a shortage of homes...

Home owning is very encouraged here in Portugal, rentals are not that popular. Normally, those who rent are either single people with temporary jobs (nurse, professor, etc.) or tourists (mostly STR), but I'm trying to invest in LTR... However, with the low wages is not easy to have good returns. The avarage here is a 0.5% rule, or to be more precise, you get around 600-700 euros for a 120K-150k apartment...

So, please, let me know how things are going on your country or region. Those who are looking to invest here, should look at flips or STR, otherwise... maybe commercial.

let me know your thoughts

Hi everyone, I'm trying to get some people to understand the dynamics of small countries, as is the case of Portugal. 

Ok, sure, we are part of Europe, but the honest truth is that a lot of things are just endemic to the reality of the local country and, inside the country, to the reality of the region.

To begin, we have to understand that Portugal is about 1000 miles x 300 miles in terms of territory what makes it easy to get around but, first problem, in small countries, eveything seems "far away".

Also, because we are small, the notion of "country" is different, in the perspective of those living and investing here. People are more concerned with their own small region that with the logic of a nation, in terms of nation wide needs. 

Real state is not strange to this reality, and the prof is that we have incredibly different markets, even inside the cities.

The Algarve region (the south end of the country) is a great example. We have locations, whitin a few miles, that very from 1000€ (around 1.2K USD) per square meter in terms of costs, and 3, 4 and even 5 times that.

Also, in terms of rents, things are very distint even inside the same city. I know that this is no different, depending on the disctricts or the class of the neighbourhoods, however, when the total population of a region with around 300x100 miles is around 440K people, its hard to understand these variations.

Also, because the place is small, we have investors and buyers coming from everywhere to buy everywhere, but with the huge differences in income between the people living in the big cities (Lisbon, Porto) and the rest of the population, its EXTREMELY hard to find deals.

Also, i think this happened worldwide, construction prices spiked and, being small and not having that much competition, it makes it very hard to get competitive quotes... so even being small, there's a shortage of homes...

Home owning is very encouraged here in Portugal, rentals are not that popular. Normally, those who rent are either single people with temporary jobs (nurse, professor, etc.) or tourists (mostly STR), but I'm trying to invest in LTR... However, with the low wages is not easy to have good returns. The avarage here is a 0.5% rule, or to be more precise, you get around 600-700 euros for a 120K-150k apartment...

So, please, let me know how things are going on your country or region. Those who are looking to invest here, should look at flips or STR, otherwise... maybe commercial.

let me know your thoughts

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Mike LambertPro Member
Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
5y

@Juan Correia

Real estate is local and many if not most investors invest in their backyard, even in large countries like the US. In that sense, the size of the country isn't that relevant. The common issue with small countries though is that, if you want to invest outside of your own backyard but stay in your own country, the amount of alternative markets you can invest is limited. However, small countries can have very difficult markets.

Portugal has basically four sub-markets: Lisbon, Porto, the Algarve and the rest.

The situation you mentioned in the Algarve is very particular. In the Golden Triangle, you'll pay up to €5,000+ per sq m for a villa because that's where wealthy Portuguese and foreigners, including celebrities, want to be. That's the Beverly Hills of the Algarve, with its gated communities and resorts. As soon as you get out, you're in the "normal" market where the wealthy won't buy or rent and so, yes, within a few miles, the price will drop up to 5 times less. A piece of land to build a villa in the Golden Triangle is more expensive than the same villa outside of the Golden Triangle. And there is nothing like the gentrification of the surrounding areas or the Golden Triangle overflowing to the surrounding areas. You're in or out. It's that simple.

The market in Lisbon has been overinflated by the Golden Visa and the massive buying of properties by Chinese citizens and others who didn't care what they paid for a property as long as they can get EU citizenship. At the same time, foreign money came to the country to buy dilapidated buildings and transforming them into short-term rentals to take advantage of the tourism boom and gentrification happened. This has pushed prices even higher. Within the European Union, the average home price in Lisbon is now higher than that of my hometown of Brussels, even though the average income in Brussels is so much higher and Brussels is the capital of the EU. That makes no sense. When I last visited, properties were advertised with a promised 4% return with short-term rentals as if this was a great return! The rents in Lisbon already low compared to the property prices, have dropped significantly since the start of the pandemic as empty short-term rentals were converted to long-term rentals. And, even after that, the average rent is still higher than the average salary in Portugal. And, when Lisbon became too expensive for some, the gentrification and conversion of dilapidated houses into short-term rentals extended to Porto. What's not helping is that, starting next year, the Golden Visa program is going to exclude Lisbon, Porto and the other high density areas.

With the rise of the real estate prices along with other assets over the last decade, it's been (extremely) hard to find deals in many places and the 0.5% rule is very common in many places across the world. If you're limited to such markets and you want to buy and hold, you can either find motivated sellers or go for the short-term rental route indeed, bearing in mind that it isn't easy money and that you might have to work for it. Also, because of the prices and rents in Lisbon, many people cannot afford to live there anymore and so I believe there might still be long-term rental opportunities in areas like the South Bank.

@Mike Leng

I looked that the Azores and abandoned the idea immediately. Expensive properties and unattractive short-term rental prospects. If you buy for lifestyle, you might possibly cover your costs if you rent when the property isn't used buy I'm not even sure of that; you'd want to do your calculations to check that out.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    I have been to Portugal a couple times while in the Navy. I remember the exchange rate being very favorable to the U.S. dollar.

    Can you check STR sites and see if other people are successfully running vacation rentals? That will give you your answer.

    0Reply
  • Juan Correia
    OP
    Rental Property Investor · Portugal · Member since 2018 · 61 posts · 26 votes
    5y

    @John Underwood EURO arrived :) Yes, of course they are. The issue is GROWTH

    0Reply
  • Mike Leng
    Member since 2020 · 24 posts · 8 votes
    5y

    Juan, the real estate market is very hot in US now, but the US price (as a ratio to income) was quite low comparing to most other countries, so even with the spike in prices lately, we are probably still a little below average. 

    By the way, I have always wanted to own a vacation home in the Azores. How familiar are you with that region? Is there an established STR eco system to allow a remote foreign investor to successfully own and rent out a property, i.e. multiple competitive Property Management companies, abundant labor supply and services, friendly government policies and tax schemes?

    0Reply
  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Juan Correia

    Real estate is local and many if not most investors invest in their backyard, even in large countries like the US. In that sense, the size of the country isn't that relevant. The common issue with small countries though is that, if you want to invest outside of your own backyard but stay in your own country, the amount of alternative markets you can invest is limited. However, small countries can have very difficult markets.

    Portugal has basically four sub-markets: Lisbon, Porto, the Algarve and the rest.

    The situation you mentioned in the Algarve is very particular. In the Golden Triangle, you'll pay up to €5,000+ per sq m for a villa because that's where wealthy Portuguese and foreigners, including celebrities, want to be. That's the Beverly Hills of the Algarve, with its gated communities and resorts. As soon as you get out, you're in the "normal" market where the wealthy won't buy or rent and so, yes, within a few miles, the price will drop up to 5 times less. A piece of land to build a villa in the Golden Triangle is more expensive than the same villa outside of the Golden Triangle. And there is nothing like the gentrification of the surrounding areas or the Golden Triangle overflowing to the surrounding areas. You're in or out. It's that simple.

    The market in Lisbon has been overinflated by the Golden Visa and the massive buying of properties by Chinese citizens and others who didn't care what they paid for a property as long as they can get EU citizenship. At the same time, foreign money came to the country to buy dilapidated buildings and transforming them into short-term rentals to take advantage of the tourism boom and gentrification happened. This has pushed prices even higher. Within the European Union, the average home price in Lisbon is now higher than that of my hometown of Brussels, even though the average income in Brussels is so much higher and Brussels is the capital of the EU. That makes no sense. When I last visited, properties were advertised with a promised 4% return with short-term rentals as if this was a great return! The rents in Lisbon already low compared to the property prices, have dropped significantly since the start of the pandemic as empty short-term rentals were converted to long-term rentals. And, even after that, the average rent is still higher than the average salary in Portugal. And, when Lisbon became too expensive for some, the gentrification and conversion of dilapidated houses into short-term rentals extended to Porto. What's not helping is that, starting next year, the Golden Visa program is going to exclude Lisbon, Porto and the other high density areas.

    With the rise of the real estate prices along with other assets over the last decade, it's been (extremely) hard to find deals in many places and the 0.5% rule is very common in many places across the world. If you're limited to such markets and you want to buy and hold, you can either find motivated sellers or go for the short-term rental route indeed, bearing in mind that it isn't easy money and that you might have to work for it. Also, because of the prices and rents in Lisbon, many people cannot afford to live there anymore and so I believe there might still be long-term rental opportunities in areas like the South Bank.

    @Mike Leng

    I looked that the Azores and abandoned the idea immediately. Expensive properties and unattractive short-term rental prospects. If you buy for lifestyle, you might possibly cover your costs if you rent when the property isn't used buy I'm not even sure of that; you'd want to do your calculations to check that out.

    1Reply
  • Juan Correia
    OP
    Rental Property Investor · Portugal · Member since 2018 · 61 posts · 26 votes
    5y
    Originally posted by @Mike Leng:

    Juan, the real estate market is very hot in US now, but the US price (as a ratio to income) was quite low comparing to most other countries, so even with the spike in prices lately, we are probably still a little below average. 

    By the way, I have always wanted to own a vacation home in the Azores. How familiar are you with that region? Is there an established STR eco system to allow a remote foreign investor to successfully own and rent out a property, i.e. multiple competitive Property Management companies, abundant labor supply and services, friendly government policies and tax schemes?

    Im very familiar with the capital island São Miguel. Yes there's a vacation and STR ecosystem, you may visit AirBNB and check it out. Portugal is very foreign investor friendly and you even have Golden Visa programs, but as an investment, its easy to purchase and rent a property. You may use a private person or a rent management company, you will find a few locally. I would recomend that you ask the realtor that sells you the houses for recommendations on that part. Also, labor and services depend on the island. If that's a concern, then I would absolutely recommend São Miguel. Regarding taxes, I recommend you have a company, in Portugal the taxes are hugely more advantegous to companies than for privates.

    0Reply
  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Juan Correia

    You brought up some great points. Portugal is indeed very investor friendly and there is indeed an STR ecosystem there. So, if @Mike Leng decides to buy a property there, he shouldn't have too much of a problem getting it properly managed.

    I was commenting more on the profitability aspect. When people ask me for an opinion, I try to respond as much as possible with facts first and then I'll go with my most informed opinion when facts are unavailable. Because, as the saying goes, we're all entitled to our own opinion but not to our own facts.

    Looking at the facts, there's a first step anyone willing to invest in STRs in the Azores (or anywhere else for that matter) can check out the price of properties, the rental rates and the occupancy rates. Factoring in the costs, they can determine if the return on investment is acceptable to them. It wasn't for me so I needn't waste my time on all the other considerations. Mind you, somebody's low return can be somebody else's high return, as people have different earning expectations. therefore, it's always worthwhile for anyone to do that exercise.

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