Property Investment in Portugal
The purpose of this post is to connect with anyone interested/actively investing in the Portuguese Real Estate market.
I am moving to Portugal in March 2019 and wanted to connect with fellow Property investors. There seems to be an interesting investment case for Portugal currently and by building a supportive network of investors we will be able to discuss opportunities and build our experience faster than if we go it alone
When I arrive in March I will be focusing on learning the market and seeing which strategies will work for me.
This is the discussion we’ve been looking for! My husband (Portuguese) and I are interested in buying a short term rental apartment/house in Portugal. The goal is to have a place for us to stay when we visit his family (they live close to Torres Vedras) and also have a place that cash flows. We’ve been struggling to narrow down an area around Lisbon that makes sense. So far, we’ve been looking at Ericeira, Azeitao, Sesimbra and downtown Lisbon but those areas are saturated and are expensive. Any recommendations/suggestions? Aside from the real estate websites (idealista, sapo,Imovirtual) and AirDNA, is there another website/source that we can use to analyze the areas? Our budget is
@Marielle Walter We'll have 10 micro-units on this one, cash on cash is going to be a little bit over 16% on the conservative side, depending on the area and type of property there's different property management companies I would recommend but we will be managing this ourselves. I'll shoot you a message so we can talk better!
@Marco Teixeira I'm looking into it as well, the main two issues I'm trying to solve are that not only you have to find the property but be conscious about to which city hall that area belongs, that makes a huge difference in time frames if you want to license it as senior living, the other thing is scale, it's more management intensive (staff 24/7, doctor visits, nurses, food, etc...) therefore if you don't have enough beds it might not make sense, you'll end up having to charge too much per person for you just to break even, that being said there is definitely a HUGE demand for it. For what I've seen the trick is to stay out of major metropolitan areas (prices are cheaper and city halls more easy to work with) but close enough by highway to the city (30-50min) so it makes sense for the family to visit. Would love to crack this, if you're interested let's meet up and discuss this further!
@Diogo Candido i'm definitly up for a good challenge ;)
Looking at what is in the market already, it seems we would need to "build" some kind of 4 or 5 star hotel but ready for seniors.
Then we would have two options:
1) find an operator to run the assisted business who would be our tenant (not the seniors) and pay us a rent;
2) manage the property and the assisted business;
At this point in my life, i would be only interested in number 1). In the future will see.
So it seems to me, that what we first need to do is find those operators and see if they would be interested to rent those homes and talk with them about the numbers. For example, if it costs 1M€ to put one of these homes ready, the rent would need to between 10 to 20k€. I don't think anyone will pay this but i wish i'm wrong.
Great to see what people are up to!
As an update on what we have been doing, we have finally completed on the house in Peniche!
@Diogo Capela can give a more detailed view on some of the legal adventures we had with this property but, to summarise, my key learnings from this deal to date:
1) Get confirmation that the entirety of the property is on the Camara (town hall) plans and fully legal. For most people this will require a lawyer. There are a lot of properties with illegal/grey aspects to them. In our case this was an annex built without proper permission, which limited the m2 that the bank would value the property against, and limited to how much space we would be legally allowed to use. A huge number of properties we have looked at would have issues on this front.
It can lead to an opportunity to improve the value of a property if you can buy it with an illegal area, get that area legalised and then sell on with a higher value that the bank would lend against, but it's not clear cut and it seems though that there are almost two levels of 'legalisation' - we were able to register all of the annex on the plans and could fully incorporate a portion of it but there is another portion that is too close to the back boundary wall that should only be used for things like storage and not ever for habitation.
2) During the purchase process be careful, amongst other issues with this property we had the situation where the seller's lawyer was not actually a lawyer (having been struck off). In addition to being illegal, if we had not caught this, (thanks Diogo!) we would have paid the 10% deposit and have had zero legal recourse to get the money back. This is because the signatures on the promissory contract are only legal/ enforceable if actually witnessed by a lawyer, not a fake one!
We got bank financing on this property and having a local bank doing DD on the property to protect their own money seemed like a sensible way of double checking your own DD! If nothing else that is a strong reason for us to always seek external leverage.
3) Time - things can really drag out with the planning process! This wasn't a problem for us but I would certainly steer clear of any projects that are time sensitive and require some kind of planning. The planning process can take a very long time! It seems that the councils who manage the planning process are very heavily over-worked and hence behind on planning applications.
We are now starting to renovate the property and I am sure we will have some excellent experiences/learnings with this phase as well!
On another note we also have under contract a 16 unit building in Lisbon. The purchase process so far as been very simple. A great example of how a 1 unit house can be more troublesome than a 16 unit building! I hasten to add that we are at early stages with the 16 unit building, but it certainly seems to be the case so far. I wonder if I have now jinxed it!
In my opinion, there are opportunities aplenty even though things are a lot slower here in just about every respect.
What sort of investing are you looking to do @Benjamin A Ersing? Have you been to the Algarve before? Any area that piques your interest?
@Marco Teixeira I completely agree! Since your post I met a couple more owner-operators with a portfolio of senior living properties willing to partner up on projects. I sent you a message.
@Riaan Knoetze I'm working on one right now, let's see if it closes. I have had a little difficulty understanding the legal limits of Owner Financing here and don't quite understand it yet, how much interest can you charge, etc... different attorneys have given me different answers, I need to speak with @Diogo Capela about this. I don't know if this helps but Rent to Own/Lease Option Agreement seems to be a lot more common and well known.
I am currently investing in Short Term (Vacation) Rentals in Portugal.
I have invested in the past in long term rent & hold properties in the United States. Currently, I have been living in the Lisbon area (Cascais) for about 2.5 years.
After some investigation into the Portuguese Real Estate market we (my wife and I) decided that with Portugal’s rapidly growing tourist influx that the risk/reward calculus pointed to STR. Additionally, due to limited capital and the desire to minimize risk in a new country (for us) we employed a Master Lease strategy. You can find more info on this strategy with your favorite search engine.
The basic property details are it’s a 1b/1b apartment just outside the Centro of Cascais with a parking garage and access to a community pool.
Here are the numbers over the past 6 mos.:
€3,000.00 – Rental contract, First, Last, Security Deposit
€3,056.68 – Furnishings/Consumables
€1,308.03 – Taxes/Legal
TOTAL – €7364.71
Average Monthly Gross:
TOTAL – €1820.33
Average Monthly Operating Expenses:
€127.25 – Utilities
€191.10 – Taxes, Maintenance, CapEx
€289.15 – Management
€1000.00 – Rent (*See Master Lease Strategy)
TOTAL - €1,607.50
Average Monthly Cash Flow - €212.83
Est. months to break-even - 35 months
Obviously, there are a lot more details (challenges, wins, etc.) to this story. We are currently riding out the low tourism months which is a challenge and effects our numbers, so, we hope to see an improvement during the upcoming tourist season. Our prospective numbers point to increasing profits as the deal ages with an eventual infinite ROI once the initial investment is paid off. Our numbers above also account for CAPEX, Taxes and Maintenance to give a better long term picture of realistic cash flow.
Of course, if anyone has questions, is interested in the details of how we made this work or partnering on expanding the project, feel free to message me or reply in this thread.
More importantly, this is my first time utilizing this strategy; in a country, culture, laws and language that is foreign to me, so if any professionals see a glaring problem with my numbers or legal or otherwise, my ears are always open to wisdom.
I hope to update at the one year mark to get a better picture of numbers, specifically ROI.
It’s possible but works in a different way.
When you ask for financing, the % will over the purchase price, or over the appraisal.
If you refinance within 2 y, the appraisal doesn’t count, so it has to be considered only the purchase price. Over 2 y and new appraisal will be possible
Originally posted by @Luís Ferreira:
Over 2 y and new appraisal will be possible
Do you have any links where we can read up more on that (Even if it's in Portuguese)? Also, is this based on Portuguese law or just banking policy? If it's the latter, refinancing from a banking institution would be determined by the location of the bank rather than the location of the property methinks.
Hope everyone is well.
Lockdown is being lifted and looks like the B and C areas took a ~8% haircut in asking prices.
I am looking at the center of Portugal, in the interior and RE is local... How are thing in your "interest" area?
Originally posted by @Luís Ferreira:
What areas are you looking for @Rui Dias Costa?
Curious about 2 areas: Lisbon and the "Costa de Prata". You're in Lisbon, right? How do you feel the RE market is right now and how it will be in the next 6 moths?
Yes, I am in Lisbon and my perspective is optimistic.
I think that 2020 will be quite solid due to all the supports and subsidies from banks and government. 2021 will give some discounts and Christmas 2021 will be the turning point for RE to grow up again