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Buying Investment Property In The Algarve

Posted by admin on November 12, 2018
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Why the Algarve? It offers many advantages. With plenty of airports and low cost airlines offering flights to Algarve’s Faro International Airport, and flight times not more than a few hours from most of Western Europe, the Algarve is easily accessible. Voted one of 2018’s most peaceful countries in the world Portugal has one of the lowest population to land densities in Europe. The strict planning regulations secure the natural beauty of the sandy beaches, open countryside and forests. This in turn limits the supply of new properties, keeping the demand of property for sale high!

Politically, Portugal is stable, has no terrorist groups, gangs or mafias! With one of the lowest crime rates in Europe and the capital, Lisbon, recently voted the safest in Europe there is an increasing demand for properties and rentals, both short and long term.

Portugal also offers some excellent tax advantages. The Portuguese Golden Visa or ‘Resident Permit for Investment’ is a fast-track method for non-EU members and their family members to obtain Residency Permits in Portugal, with no direct tax implications/obligations for income generated outside Portugal.

There is also the Non-Habitual Tax Regime (NHR) in Portugal, offering a decade of generous tax breaks. Read our articles about the advantages of Portugal’s NHR scheme.

In comparison to property prices in other European countries such as the UK, Ireland, Paris, Spain and France, property in Portugal is still very affordable. Quality properties at low prices means good rental returns. Rental yield on average still remains one of the highest in Europe, statistics show that gross rental income in Portugal ranges from 5% to 7%

COSTS INVOLVED

When you purchase a property in Portugal, as with any other country in the world, there are ongoing costs and taxes to pay. You can see information about these HERE.

In addition to that, especially if you are planning to rent out your holiday home in the Algarve, there are of course some maintenance costs involved. If you are not able to manage and maintain your property investment yourself, it will be important to have it well cared for all year round on your behalf. This ensures that your home is in top condition for tenants/guests, plus when the time comes to sell your property it maximises the likelihood of the best valuation possible.

Examples of services you will need to pay for are maintenance of gardens and pool, plus cleaning and laundry services if applicable. You may wish to work with a property management company to manage your bookings/tenants, pay utility bills and taxes, supervise maintenance works and just generally ensure the property is always in a good state of repair.

We have a panel of recommended Property Management companies, please contact us for information.

RENTAL INCOME

 

The income you can expect will depend of the type and quality of property you offer, its location and where holiday lets are concerned, the season.

Where short term holiday rentals are concerned, on a weekly basis and during peak season (June to September) you can ask between €500 and €1500 for a two bedroom apartment, depending on its location, if it has a sea view or luxury facilities etc. A four bedroom villa with private swimming pool can generally be rented out for between €1500 and €4000 per week, again dependant on location and facilities.

PROPERTY RENTAL TAXES

When renting out Portuguese property, the income is always taxable in Portugal, regardless of residency. It’s important to understand these tax implications.

For non-residents, tax on LONG TERM rental income is set at 28%, although property maintenance, repair expenses and IMI (property tax) may be deducted.

A non-resident that rents out a property SHORT TERM (holiday let), pays 28% tax over only 35% of the income. The remaining 65% of the income is tax free.

For those who are resident in Portugal, your rental income on LONG TERM rentals has a flat tax rate of 28% on income, after expenses have been deducted. Alternatively, you can choose to add rental income to your other income for the year and pay tax at your normal scale rates. However, with rates up to 48%, this option only benefits those within the lowest (14.5%) tax rate band.

A Portuguese resident that rents out their property SHORT TERM (holiday let), pays 28% tax over only 35% of the income. The remaining 65% of the income is tax free.

There have recently been proposals on long-term rental tax changes which are likely to be contained in the 2019 budget submission currently being discussed in parliament until November 29th 2018. After which, changes may or may not be included in next year’s official budget.

Tax regulations can be complicated and are frequently changing, so we suggest discussing your own personal financial situation with your Portuguese accountant.

PLEASE NOTE: If you rent property to tourists in Portugal, you must arrange an Alojamento Local licence. There are various requirements including compliance with safety requirements, registration of floorplans with the local council (camara), and the installation of legal signage and first aid equipment. The process is straight forward, but can be time consuming getting the relevant paperwork in place and signed off to obtain the license. A reputable Property Management company can you guide you through the process.

 

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