Updated: Nov 17, 2020
If you are looking for a place to invest in real estate, Portugal is up there for its promising yield, stable environment, and various incentive programs. Although Portugal’s property prices have been rising In the past five years, the country remains to be one of the most profitable places for real estate investors. Therefore, Portugal becomes the hotspot for many investors with interests in the real estate asset class in the eurozone.
You have a few options when it comes to real estate investment in Portugal. The ideal way for you depends on how actively you want to engage in the investment and the return/risk you are looking for. Once you determine this, you should be well on your way to a good real estate investment in Portugal.
There are a few ways of investing in real estate, three of them are particularly relevant in Portugal. Buy-to-let, buy to renovate, or private equity investment in real estate development projects. In this article, we will take a look at the risks and returns of each type of investment.
The yield of buy-to-let real estate investment in Portugal has been hovering above 5% per annum, which is very attractive compared to other European countries. Many investors not only enjoy the rental yield but can also harvest upside by renting on a short-term basis in high seasons. This type of investment offers stable yield, paired with high quality, reasonably-priced property management offered by many companies in Portugal, buy-to-let becomes the most popular and convenient way for investors to participate in the Portuguese real estate market. The downside is that the property prices have reached a high point in recent months, therefore, future capital gains remain uncertain on a buy-to-let property.
2. Private value-add real estate investment in Portugal
Walking on the streets of Portuguese cities, any person would notice the many underutilized buildings. Many buildings and apartments are waiting to be repaired and brought back to life. More hands-on, opportunistic investors are choosing to do it themselves, acquiring apartments or small buildings to renovate to rent or to resell.
Value-add real estate investments in Portugal are much more available. Although the process is much more labor-intensive than buying in a buy-to-let asset, the reward is also much higher. The market still offers some interesting, undervalued assets if you have some patience to go through the process.
Usually, investors target double-digit returns when they get into the dirty work of renovating a building or an apartment. The upside is there, however the downside could be time-consuming processes and higher risks involved in the renovation. Private value-add deals are unique opportunities for investors with plenty of time and experience.
3. Equity investment in real estate development companies
What if you are looking for higher returns but less hassle for yourself? Investors can consider investing in projects that are run by professional fee-based real estate developers. Fee-based developers charge a fee and acquire, develop, and exit development projects on behalf of their clients.
Professional development projects can show great yield, as investors have access to institutional-level investment opportunities. In the past few years, Qualive has delivered its clients over 15% year-on-year returns net of fees in our real estate investment portfolio in Portugal.
Choosing the right developer is the key. Investors should look for professional developers with similar ambitions and investment philosophies. Usually, equity investments in real estate development companies are only available to accredited investors.