Buying a Property in Portugal for Fun and Profit
Not Investment Advice
Welcome to “Not Investment Advice”. This is the space where I dissect my investment ideas just for fun.
This first post of the series is about my adventures in real estate investing.
In 2018, a group of friends and I had the idea to go surfing. I was recently back from my sabbatical in South America where I picked up surfing and a few friends were genuinely up for joining me and spending a few days getting shattered by the waves.
We ended up in Peniche, taking classes from one of the most famous (and hardcore) surf camps in the area. Peniche is a beautiful place but by mid-October, our surf sessions started to feel more like approaching the D-Day in Normandy than the sun soaked t-shirt surfing I was doing in Nicaragua. The pace of the surf bootcamp did not help to convey a different image. By day 3, most of my friends were injured or lost motivation for surfing.
One day, during the mid-day break, one of my friends and I were walking in the village near the breaks, and eventually the conversation of buying a place in Portugal came up. Classic tourists.
The year after, 2019, we got wiser and went to the Algarve. Sagres, the end of the world, and surfers’ paradise. Sitting on the beach, after a few too many cervejas, the idea of buying a place in Portugal came back. We also started gathering intel on the market to discover that Sagres was basically owned by a few people and buying there was super expensive, despite most of the buildings looked pretty decrepit.
Something that I learned about myself is that when I have an idea or a goal, I don’t give up easily. It might take me some time, and a few detours, but eventually I get it done. 2020 was a gap year for surfing for obvious reasons but I started devouring every resource I could on real estate investing. Unfortunately, most of it was American so it has little application in the European market. Nevertheless, I joined a real estate forum and started talking to people that invested in Portugal.
After months of research, which consisted mainly of talking to random people, I landed on the conclusion that Algarve was the best place to buy. The question was where.
One of my surf mates was in Albufeira for a weekend, and serendipitously had dinner with a real estate agent who sold him the Algarve dream. The original idea was to buy a place together, but then we ran the maths and did not make much sense.
Anyway, we had a call with her, but somehow I was not sold. Sure, Albufeira checks a lot of boxes but I don’t know, it felt too much like England in the sun.
I don’t remember how, but we got a connection with a property manager in Lagoa. Lagoa was under the radar, there were a couple of interesting pockets such as Alvor and Carvoeiro. Portimao did not strike as a place to invest despite property prices being cheaper.
Eventually, in 2021 me and this mate went surfing again but this time in Lagos. It was love at first sight and I set to buy a place there. Lagos has it all. It is the closest town to all the best surf in the Algarve. It is bigger than Sagres. It has a train (sort of) that connects it to Faro. Great bars, good nightlife that doesn’t feel like a stag do. Plus it is gorgeous. It has this old town vibes and some majestic walls.
Unconsciously, little by little, a set of criteria started to shape in my head.
So one sunny morning, I walked in in pretty much all the real estate agencies in the city centre and started going house shopping.
My girlfriend and I eventually made an offer for a place right off the main strip. It was very reasonable, but the deal did not go through. First learning, do proper due diligence on the sellers. These guys wanted to sell their place to buy a bigger one in Lisbon, if I remember well. Due to taxation, they basically had a very short window of opportunity to close this deal so it was very fragile. We made our offer, they accepted it, but never signed the papers. In the meantime, we started battling Portuguese bureaucracy. First stop, opening a bank account. We went for what seemed like a foreigners friendly bank. It was an absolute nightmare. This is another learning, find your allies.
In 2022, I came back to Lagos, determined to buy my first property. I did have quite a gruelling schedule. Surf during the day, visit apartments after at a pace of 2-3 per day, go out partying and start again the day after.
Most of the places I saw were not great. But then, I found a gem. It was through an independent realtor I contacted on idealista. Saw the place, and by my calculations, it was slightly underpriced. The sellers were a couple of foreigners that wanted to sell because they were getting old and could no longer travel to the Algarve. I offered the price they asked. In hindsight, I should have played ball and haggled on the price. But, I did not want to lose this deal. It was by far the best place my budget could buy.
What I liked about this apartment was that it was right in the city centre, very defensible because it is hard to build new supply inside the walls. Also, it has two bedrooms, two bathrooms, and two balconies, one of them is a majestic terrace overlooking the city. Something I have learned from my job in the vacation rental industry is that rentals that performs are the ones with something unique.
This time around, I had a team to support me. My realtor hooked me up with a lawyer specialised in real estate, and a mortgage broker. Remember when I wrote a few paragraphs ago that opening a bank account was an absolute nightmare? Well, the mortgage broker sorted everything for me. Build your dream team, don’t try to go DIY on everything, especially in a foreign country. It is really worth the extra money.
Next I had to find a property manager. Spoke to a few, eventually decided for a property manager who was working for Holidu. For me it was important to be able to use our software as I wanted to get the full user experience.
We are now in year 4. How did things go?
The first year was not great in terms of revenue. I mispriced the rental and within a few days I was fully booked in summer. Then the property manager called me saying that we were losing money in the low season bookings because of cleaning and laundry costs. I immediately reviewed my prices, the damage was done though. At the same time, the first year is all about getting the first bookings and reviews. Once you have done that, you can increase your prices.
I remember looking at my competitors back then. There was this tiny place in the centre of Lagos that had insane reviews and was booked pretty much 365 days a year. There was a little lesson in there. Make your place unique.
Year two was definitely much better and eventually in year three I broke even.
Property prices have soared in the past 4 years in Lagos and basically at the moment I have a property paying for itself and appreciating in the meantime.
Not too shabby.
So, dear friend, after reading all of this blurb, should you invest in a short term rental in Portugal?
It depends.
Something I have learned the hard way is that investing is a risky business and you want to minimise the chances of losing your shirt. One of the most common, and often not listened to, advice is to invest where you have an edge.
Thanks to my work at Holidu, I understand vacation rentals better than most people. I mean, I spend most of my waking time thinking about driving revenue to properties across Europe and that’s where my edge is.
Would I do it again?
Only if the right deal came along. The reality is that the Algarve market has changed since 2022 and it is harder to drive returns from a vacation rental given the higher property prices and mortgage costs. Demand is still strong, but guests are increasingly price sensitive. Furthermore, there has been an increase in restrictions on short-term rentals and I keep hearing horror stories about people stuck in the process to get the license for short-term rentals. Finally, taxes have also increased for non-resident owners.
This doesn’t mean that the opportunity is gone. It has just moved. Inland Algarve, thirty to forty minutes from the coast, can still make sense but I would look for a very unique property.
At the same time, something I have learned is that there are always deals if you are willing to put in the work, be patient, and find them. Building relationships with local realtors can help find deals before they get to the market. There are also a lot of ugly ducklings, apartments or houses that need some love but could still make a good return.
The edge argument still stands though. Don’t do this without doing your due diligence and understanding the market from inside. Luck and patience matter, but they work better when you know what you are looking for.
Thanks for reading,
Sayonara