What are the main reasons to do buy-to-let investment in general and Portugal specifically? Is it for me?

Intro

Before and after moving to Portugal you have probably come across articles, posts and videos telling you the reasons to buy real estate in Portugal. Many of those, of course, are authored by real estate agents who would like to sell you a house. They might include facts and good reasons for buying or just state the obvious triad of sun, beaches and food and try to derive a rationale for buying from that.

A lot will surely be relevant for you in regard to moving to Portugal, but let us have a look at the factors that determine whether Portugal is also a good place for your money.

We will start with general reasons which give buy-to-let investment an advantage over other investment opportunities and then see if there are any additional advantages that apply to Portugal more than to other countries.

Focus in this post will be on reasons and, hence, advantages. Follow the respective link if you would like to learn more about the 5 biggest threats to the real estate market in Portugal in 2023 or the troubles that the Governments housing law package ‘mais habitação’ might bring.

The terms investment and buy-to-let will be used interchangeably.

What are the main reasons to do buy-to-let investment in general?

Investing in buy-to-let has some advantages over other types of investment. These are not universally true but apply to most developed markets and buildings most of the time.

Cash flow and passive income

On the top of the wish list of many digital nomads and part-time investors is passive income and cash flow respectively. Despite the obvious required tasks that are still needed, like search, selection and financing process as well as various property management tasks, real estate is very suitable to generate a constant, long-term and low maintenance income stream.

Further, many tasks can be outsourced to advisors, which can make it even easier to implement.

Capital appreciation and leverage effect

On top of the above-mentioned cash flow returns there is a fair likelihood that the value of your asset (meaning house, apartment etc.) increases in the long-term. Although this is usually hard to cash in on without selling it builds and stores wealth.

This is even more the case when debt financing is applied, since the value increase applies to the market value of the total investment which is higher and often a multiple of the invested equity. This is also known as the leverage effect and we will shed light on that in a future post.

You might argue that a big share of the mortgage rate go into interest payments which you will never see again. However, you still have the returns:

  • Firstly, the difference between the income of the property and the costs of the mortgage.
  • Secondly, the part of the monthly rate that is the repayment.

Taxation

Depending on your personal tax rate this may or may not apply to you. In many countries taxation of real estate investments is more favourable compared to other asset classes because it is often considered a retirement provision. Regulations vary and it may be worthwhile to stay on top of the topic to align your decision with it.

Often tax advantages come in the form of:

  • reduced capital gains tax at sale after a certain minimum holding period or when the reinvestment meets certain criteria
  • reduced tax for buildings under monument protection or in dedicated development areas
  • increased write-off options to reduce the taxable profits
  • deductibility of costs to reduce the taxable profits
  • special deductibility or direct subsidies for improvements of energy consumption
  • reduced tax for rent coming from affordable housing
  • tax reductions to transform short-rentals to long-term rentals

In Portugal some of these are about to change with the implementation of the housing law package ‘mais habitação’.

Volatility

Since the underlying factors which determine the performance of real estate are rather slow and the market is very large, volatility is lower than in many other asset classes. This is also supported by the fact that property is not very liquid (or tradeable) and often held long-term.

Inflation

Often called an inflation hedge, one reason for buy-to-let investment is that it offers relatively good protection against inflation. This will depend on the type of real estate, rental law as well as the tenancy situation. However, the following contributes greatly to safeguarding your money:

  • Firstly, market rents (the rent that a unit could be let at) move freely, so at time of high consumer inflation and-or rising incomes, new lease contracts are entered into at respective higher rents. Each time a lease ends and a re-letting takes place this can be repeated.
  • Secondly, most lease contracts have an indexation clause which links them to consumer inflation. Variations of it also exist, e.g. step rents (fixed increase) or rent updates according to market rents. Even when these often cannot reflect the entire inflation, the adjustment is much better than in many other investments.

Limitations often occur when governments apply rent caps trying to maintain affordability. In Portugal, an example of this would be parts of the housing law package ‘main habitação’.

What are the reasons to do buy-to-let investment in Portugal specifically?

There are some reasons for doing buy-to-let investment that currently apply more to Portugal than top many other European markets.

Supply and demand

In Portugal, more than in many other European real estate markets, limited supply meets rising demand. A lengthy licensing process, one of Europe’s highest GDP increases, rising average incomes and a strong immigration have led to annual double digit increases in rents and sales prices in Lisbon and some other locations.

Whereas most countries in the EU face stagnating decreasing property values, Portugal has only seen a slower increase and current forecasts expect a moderate decrease of 3% that is yet to be seen.

Further, the governments housing law package ‘mais habitação’ has the potential to put further pressure on housing supply.

Market development

The Portuguese real estate market has become significantly more professional, international, transparent and investible over the past 10 to 15 years. This was also supported by politics that incentivise investment and create stability for market participants.

Affordability

Often foreign investors plan to divest in their home market and invest in Portugal after they have moved. What becomes obvious during that step is that, despite being exceptionally expensive for locals, real estate purchase in Portugal is still rather affordable for foreigners. This shows in absolute terms (price of a unit), in square meter terms (price per sqm) and in rental returns (yield):

  • Instead of one apartment you can often buy a building and maintain more control over your investment.
  • Instead of buying a unit in a secondary location you can often buy in a prime location.

International attention

This is a relatively soft factor, but should not be underestimated.

Despite being rather small country the international attention of media, tourists, digital nomads and immigrants is significant and poses a relevant support to the economy and, therewith, the real estate market. It benefits the important hotel & hospitality sector, allows Portugal to attract foreign investment and direct funds to areas of the economy that need improvement. This strengthens employment and support incomes and eventually the real estate market.

Is buy-to-let investment in Portugal for me?

As you will probably already have learned from other posts on Real Estate Bricks, this will always depend on your personal risk-return-profile.

Compared to some markets, where foreigners typically come from, Portugal is a bit less transparent and professionalised. Although this is constantly improving, real estate investments in Portugal have higher risks and higher returns.

Always consider the risk exposure that suits your lifestyle, the mix with other investments as well as diversification of investment types or even real estate types.

Also, what should be kept in mind is that the investment process as well as potential refurbishments and the property management may be more difficult than in your home country.

Be honest to yourself and define the amount of risk and hassle you are able and wiling to deal with.

Conclusion

If you have made all of the above outlined considerations and still find yourself optimistic about making buy-to-let investments in Portugal you can benefit from some untapped potential and achieve higher than usual returns from a very dynamic rental market and strong capital appreciation.

Stay informed about the market, understand key topics such as the housing law package ‘mais habitação’ or transparency of the national real estate market and sign-up for the Real Estate Bricks newsletter.

If you are looking for advice that helps you to understand the Portuguese market, limits your risks, supports your buying process or you want to get connected to other services along the investment process, drop us a line.

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

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What can a buyer’s agent in Portugal do for me that I cannot do myself just as well?

Intro

Depending on where you are from and how active you have been in real estate purchasing you may have come across buy-side services (sometimes called acquisition services) provided by so called buy-side advisors or buyer’s agents (different terms for the same thing).

Ironically, buy-side advisory is better known and more frequently used in more transparent, and therefore less risky and more accessible, markets. This is because transparent markets are more diverse and professionalised and therefore have given rise to a wider range of services and roles.

But let’s get on it and see why how a buyer’s agents can add value to your property investment.

This post refers to buyer’s agents instructed by the buyer (you will find more details on the different roles and their typical compensation here). If you would like to learn more about the differences between real estate agents and valuers you will find a comparison here.

Areas covered by buy-side advisors

Most investment topics circle around risks and returns. You would always want to understand and evaluate those two whilst minimising risks and maximising returns.

Identify, understand, avoid or quantify risks related to:

  • Politics (e.g. law package ‘mais habitação’)
  • Economy (e.g. labour market, affordability)
  • Submarkets (e.g. up-and-coming areas or neighbourhoods in decline)
  • Building (e.g. condition, maintenance and condominiums)
  • Tenancy (e.g. potential rent, leasing options)
  • Legal (e.g. encumbrances, contracts)
  • Construction (e.g. licensing, potential refurbishment)
  • Financial (e.g. interest rates, asking price vs. value)

Tip: The above risk will have to be on every buyer’s radar. However, if you are a digital nomad intending to invest in Portugal, you might want to check out our post on risks specific to digital nomads.

Professional advisers will help to avoid common mistakes, such as:

  • Using the asking price as market value (overpay)
  • Not understanding pricing (insufficient comparison to other options)
  • Understand letting situation (gap in returns as result of wrong estimate)
  • Over-estimate potential returns (e.g. mistake rent as the return after tax and operational costs)
  • Rely on sellers or sell-side brokers advise (their interest contradicts that of the buyer)
  • Not include further advisors (hidden problems can be costly risks)
  • Buy based on personal taste (and get disappointed when selling at later point)

Services provided by buy-side advisors

General

Potential services that may be requested span anything between the first investment intention all throughout all details of the purchase to after-sales support and sometimes even implementation of the property business plan.

However, covered geographies and topics as well as competencies vary greatly between advisors.

Before the property search begins

  • Understand clients situation and goals
  • Discuss potential submarkets and property types
  • Define a client-specific investment approach and derive a search profile
  • Think outside the box to include less obvious opportunities

Identify potential properties

  • Observe market online (e.g. Idealista, Imovirtual)
  • Maintain contacts to brokers and check on upcoming sales
  • Draw from personal network to identify off-market opportunities
  • Quick checks, calls and viewings as appropriate

Analyse investment opportunities

  • Collect and apply relevant research and informal information
  • Be aware of market developments and anticipate what happens before it is visible
  • Apply personal experience
  • Evaluate and compare investment opportunities qualitatively and quantitatively
  • Benchmark by comparing research data, market rents and costs data with the property in focus
  • Work out a property specific business plan
  • Prepare financial analysis (and-or BOV, a brokers opinion of value, or valuation model) pricing in any risks as well as future costs and returns
  • Understand value as-is and prepare potential scenario analyses, e.g. for the impact of the law package ‘mais habitação’ in regards to short-term letting, taxes and rental caps
  • Fill knowledge gaps the client may have and act as sparring partner where necessary

Manage the purchase process

  • Negotiate with the seller or their broker together or on behalf of the client
  • Act as single point of contact and monitor timing and quality of input from all advisors:
    • Lawyers
    • Tax consultants
    • Technical specialists
    • Architects and construction companies
    • Environmental engineers
    • Property appraisers
    • Mortgage brokers
    • Property managers
  • Deal with public institutions
  • Foresee problems in the transaction or with the property early on and avoid surprises
  • Make tender(s) to engage advisors
  • Organise translation of documents and contracts
  • Communicate and push and save the client time where possible
  • Bridge cultural differences and balance characters to minimise friction losses
  • Communicate with leasing agents to understand potential future tenancy options

Support post-purchase steps

  • Set up first steps with servicers, e.g.
    • Property manager
    • Leasing agents
    • Accountant
    • Architect
    • Contractor
  • Observe market to advise on potential exit timing and-or sell on client’s behalf later
  • Provide access to local network

Conclusion and next steps for you as an investor

A good buyside advisor will act as your local contact during search, transaction and, ideally, during implementation of the investment strategy. Also, they will tell you when there is a good opportunity for an advantageous exit.

However, not all advisors offer all the above services. Many may have more narrow scopes or have outstanding expertise in particular geographies, investment cases or services. Take time to analyse service proposals and understand different specialisations. Contact Real Estate Bricks to go this step with you and make a proposal or connect you to relevant advisors.

You will often find designated buy-side advisors, brokers who specialise in sales or purchases and in some cases valuers focusing on a narrow but very important part of the transaction. Reading here about the differences between agents and valuers is a good start. Would you like to explore what the above services would cost you? Find more information on brokers’ fees and compensation of real estate professionals in this post.

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All about real estate agent fees in Portugal: the 6 main types of compensation in transactions, how much for whom and what to expect

For most people real estate purchase or sales are anything but a regular event, so some unclarity exists around the real estate agents’ compensation (often referred to as commission, brokers fee, brokerage fee etc.). The lack of transparency in many markets does not help either. 

So, let us shed some light on the topic.

Apart from the standard real estate brokers fee for a sale there are some other types a real estate agent might charge. Don’t worry, you rarely pay more than one of them. 

Most are incentive fees or success fees respectively, meaning they become payable upon completion of a transaction. 

The fees that should be on your radar should be the following: 

  • Sell-side fee
  • Buyside fee
  • Referral fee
  • Sourcing fee
  • Advisory fee (fixed or by the hour)
  • Kicker (also: incentive) fee

1. Sell-side fee

This fee, also called sales fee or sales commission, is what the seller of a house pays to the real estate agent when a sale is concluded. 

How much are real estate agent fees in Portugal?

The most common real estate brokers’ fee for the sale of apartments and houses in Portugal is 5% (plus VAT). 

However, some agencies specialised in the upper segment or luxury respectively, charge up to 6% (plus VAT). These are usually the ones with a particularly strong brand, such as Sotheby’s and Christies Porta da Frente. 

The sell-side fee can be freely negotiated, so you can also come across other percentages (down to 3%, but with very difficult assets 1-2% above 6%) or even fixed amounts. The latter makes sense for very small sales volumes, because a percentage might not reflect the effort the agent expects to make. 

When you consider negotiating bear in mind the following: 

  • You want the agent to be incentivized and while they might be compensated sufficiently for the time or effort they make, there is a chance that in their daily work they prioritize an instruction that pays better.
  • It is often the small agents with less resources, such as network and brand, who compromise the most on their sales commission. As a seller you should carefully consider if you want to enter this potential compromise. 
  • As you will see further below, the sales commission will often be shared with other brokers to find a buyer and close a deal. The less the lead agent is paid by the client the less they can share with other brokers, so there is less incentive to work towards a sale.

As mentioned, in Portugal this is paid by the seller. This differs from some other countries, however, it reflects that the sales agent is instructed by and acts in the interest of the seller. 

2. Buyside fee

The second most common fee is the buyside fee, which is often referred to as the buyer’s fee. 

This fee can vary a lot and can be anything between a fixed amount of a few thousand Euros or 50% of the respective sell-side fee (especially when agents’ share) up to a full percentage equal to the sales commission which would typically apply (rather rare). 

Unlike the name suggest, this could be paid for by either the sellers’ side (through a fee share with the sales agent) or the buyer themselves as a fee that is unrelated to the sale-side fee. 

In principle, it pays the agent or consultant who represents or supports the buyer of a property. There are two different situations in which a buyside fee would occur: 

  • Firstly, the buyer instructs a broker or consultant to find a property for him. In this case the buyers advisor often asks the sellers agent for a share of the sales commission in return for introducing a buyer. 
  • Secondly, the buyer instructs a broker or consultant to provide more comprehensive advice, such as preparing a valuation, an asset business plan, coordinate other experts etc. Since being compensated by the sell-side and acting for the buy-side constitute opposing interests, the compensation in this case should only come from the buyer. 

Often, the buyside fee is a success-based fee, which means it only becomes payable when a pursued transaction is successfully concluded. However, since often much work is done in preparation parts of the fees may be agreed to be payable nevertheless or a abortion fee may occur. 

Keep in mind that the amount or percentage of any buyside fee varies greatly. However, so do the services that you can expect in return. When working with a buyside advisor always clarify their experience, qualifications and which exact services they are going to provide to you. 

3. Referral Fee 

The referral fee, often called finders fee or tip fee, is just that. It someone’s compensation for bringing a buyer or, less frequent, a property or co-investor, into a transaction. 

This can apply to other brokers or tip givers, meaning that whoever establishes contact between two parties who conclude a transaction with each other could negotiate a referral fee. 

Depending on the constellation this fee is a fraction of the sales commission or, less frequent, the buyside fee. 

In practice you find amounts of anything between 10% and 50% of the reference fee. It will depend on what the referring party brings to the transaction, how challenging that is and how well they negotiated. 

This fee will ideally have been agreed and fixed in writing before the potential buyer or asset is established. 

4. Sourcing fee

A sourcing fee is a compensation paid in exchange for identifying a property in the market for a buyer. This can be on-market (real estate portals, speaking to brokers) or off-market (approaching private individuals, speaking to people in the desired neighbourhood etc). 

This can also, less often, refer to equity or debt souring, meaning bringing an equity investor or a creditor (the party that lends the money to someone else) to an investment. 

A sourcing fee is usually paid buy the buyer, but other constellations, especially like the above-mentioned buyside-fees, occur. 

If the process is rather simple or standardised (e.g. a debt broker requests conditions from several banks) this will usually not be more than a per mille of the reference amount. When the process is difficult and highly individual (e.g. finding an apartment with unusual characteristics off-market) this fee could be as high as a sales commission. 

5. Advisory fee (fixed or by the hour)

A good real estate expert will have plenty of knowledge, skills and contacts around his actual core tasks. Often additional services are provided to facilitate the transaction from which the expert is paid. However, when the work they perform is to far outside the agreed scope or there is no base instruction (e.g. sales instruction) the advisor may charge by the hour or day. 

These advisory fees are paid by the instructing party. 

Rates can vary between fixed amounts starting at 50-100 Euros for help opening a bank account to daily rates above 1,000 Euros as often seen in business consulting. 

Since the subject scope is usually fixed it advisable to compare alternative options, compare and, for simpler services, consider lower priced servicers.

6. Kicker fee

Most of the above success fees, so they become payable upon successful completion of a transaction. However, sometimes parts of the total fee will only be paid out when predefined conditions are met, e.g. a minimum sales price. Alternatively, this can be a fee on top of the base fee. 

A kicker fee can often be found in larger commercial transactions, but is rather uncommon in the residential market. However, it can be a pragmatic incentive to negotiate into the contract with your real estate advisor. 

In practice, these kicker fees can range from 0% to 70% of the base fee and are often a percentage of the amount achieved above the anticipated sales price.

Summary

There are various ways to compensate your real estate professional. As an investor, keep in mind that: 

  • There are at least six types of fees, each of which make sense in different situations.
  • Fees can be negotiated, but you will have to carefully consider where this is advisable.
  • In real estate, and especially in transactions, there is a lot of money at stake and compromising on quality to save fees may come at a much higher price later. 
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What are the differences between an agent (broker) and a property valuer (appraiser) and who does what and how?

Lots of confusion arises, especially amongst first-time real estate buyers, when it comes to dealing with brokers and valuers. 

However, it not that complicated. Here is what you need to know:

The terms

Depending on your language area there are various different terms describing one and the same role. 

A valuer may also be called appraiser or (chartered) surveyor. The latter implies a professional qualification which, depending on laws as well as professional standards of the respective market, individual or the valuation company may or may not be common. 

It is also common to refer to them as real estate valuer, real estate appraiser or real estate (chartered) surveyor. In some countries real estate may be called property and in some both uses are common. 

An agent might be called a broker (in the USA also often Realtor). Since agents obviously also exist in areas outside of real estate they may also be referred to as real estate agent or real estate broker. Saying property instead of real estate is also common in different geographies. 

There are residential agents (usually dealing with single houses, apartments or multi-family buildings and commercial agents (office, retail, logistics, hotels etc.).

An agent who solely focuses on finding real estate according to the search profile of the client might sometimes refer to themselves as house hunters or asset sourcers. 

Nice to know

In Portugal a real estate valuer is called avaliador imobiliário or avaliador de bens imobiliários and an agent agente imobiliário

In Germany real estate valuers are called Gutachter (usually regulated), Schaetzer, Bewerter or Immobilienbewerter and agents Makler or Immobilienmakler. 

In France a real estate valuer is called évaluateur or évaluateur immobilier and an agent is referred to as agent immobilier.

Legal and regulatory

To the displeasure of many market participants legal and regulatory frameworks for real estate professionals differ a lot between countries. 

For valuers either respective public authorities or at least banks have established rules and regulations which cover formal qualifications for valuers as well as key concepts and binding guidelines for the preparation of valuation calculations and the respective reporting. Naturally the tightest knit regulations are found around valuations of private residential for bank loans and fund valuation in order to limit risks to consumers and the financial system. 

In Portugal the main body regulating bank and fund valuations is CMVM and it not uncommon to apply IVSC (international) or TEGoVA (European) standards. The largest international organisation governing real estate professions and particularly valuers is the Royal Institution of Chartered Surveyors (RICS). RICS is the world’s major institution to set, assess and promote professional and ethical standards in the field of real estate.

For agents the legal framework is usually rather thin. This can be explained by their role which is usually focused on marketing, communications and coordinating different experts alongside the transaction process. In Portugal agents obtain their licence via application to IMPIC, IP (the Institute of Public Procurement, Real Estate and Construction). You will be able to tell if an agent is properly licenced by requesting their licence number (AMI number).

Nice to know

Often, private individuals place a lot of trust in the sales agent when being on the buyers side. However, it is good practice to keep in mind that an agent who is instructed and paid by the seller will act in their best interest. 

Therefore, it is often a good idea to instruct your own specialist who acts in your interest and limits your risk exposure. 

The tasks

The main goal of a valuation is to determine an objective value of an asset. This is often: 

  • To determine a mortgage value
  • For a potential seller to understand what they would sell for
  • For an investors balance sheet
  • For a buyer to assist in the bidding and understand risks and returns

In order to remain objective and indepent it is most common that valuers charge a fixed fee payable upon delivery of the valuation report rather than a commission that is dependent on a transaction. 

The main goals of an agent are:

  • To sell when they act for the seller
  • To facilitate the purchase when they act for the buyer
  • To browse the market and identify a building when they are instructed with asset sourcing
  • To lease a unit when acting for the owner
  • To find a unit, negotiate or re-negotiate lease terms when acting for the tenant

Depending on the respective goal an agent will pursue the highest or lowest possible price for their client. 

Nice to know

Whereas a good valuation is based on past transaction evidence (lease and sale terms of comparable properties) it might not reflect recent or temporary market movements. However, an agent would be able to translate those into their work immediately.

Depending on the circumstances, this will often mean that the value stated in a valuation is below the asking price of a property.

The reporting

Typically, a valuer concludes their work with production of a valuation report. Ideally, this report covers all important aspects that led to the result, such as location, the building itself, tenancy, costs, rental income etc. 

Depending on the use type and purpose of the valuation the applied methods and verifications may be:

  • Comparison method
  • Cost approach
  • Income approach and multiplier
  • Discounted cash flow and yield profile

An agent’s work may include a short version of a valuation or estimate, but usually is more focused on a marketing plan and their practical tasks around the transaction. 

Nice to know

Whereas valuers and agents will usually have knowledge around legal, technical and environmental issues, it is good to keep in mind that those areas a better covered by respective specialists, for instance lawyers or construction engineers. 

Both, valuers as well as agents will usually be able to refer to the respective specialists where appropriate.

How valuers and agents work together

Ideally, they don’t. This might sound like a contradiction in a process that becomes smoother, safer and faster with an increase of service integration. 

However, since the valuer works to produce independent and objective advise whereas the agent is determined to move the needle towards the (usually monetary) interest if their client, these two work best without interfering with each other. 

Moreover, in many countries laws as well as regulations exclude mixing valuations and transaction advise to avoid potential conflict of interest. Whereas some workarounds can be found and sometimes make sense in the area of commercial advisory, it is not recommended in more consumer-related markets like private residential. 

Nice to know

Valuers fees are usually a much smaller fraction of a property’s value than agents fees. Rather than the transaction price a valuer would usually quote based on time, effort and provided liability.

A valuers’ fee is typically a fixed amount whereas agents typically charge a success-based percentage of the sales price or rent they achieve for their client. 

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These are the seven main challenges of a digital nomad who wants to invest in real estate in Portugal and tips to overcome them

The Situation

Various locations in Portugal rank amongst the best worldwide for digital nomads whilst providing high quality of living and proving an excellent investment in the past.

Although digital nomads are increasingly integrated in everyday life and not only enjoy, but also contribute to the well-being of urban spaces and local economies they rarely find themselves on the owner’s side of real estate investments. Instead, they are usually renters who often lack ways of making long-term investments to accumulated wealth. 

Despite being well-educated and working, their lifestyle often prevents them from ‘getting on the housing ladder’, which puts them at a disadvantage compared to their more domestic counterparts or previous generations.

Aside from the general challenges that await any buyer or investor in real estate, there are some additional hurdles that are specific to digital nomads and that they should be aware of. Depending on the individual situation those can be easy or hard to overcome. 

Overall, there are five challenges specific to any digital nomad who intends to invest in real estate in Portugal or elsewhere. In addition, you should not lose sight of the two more general issues relevant to any foreigner buying in Portugal, the most important being visa and moving without buying.

Challenge 1: Geographics

Anything real estate is local, whereas the digital nomad, by definition, is anything but local. Ranging from reaching out to a broker in a different time zone, over visiting the potential investment, understanding the micro location, making contracts to refurbishing and meeting potential tenants.

Tips

  • Use your time in the respective location to visit a broad range of apartments. Over time your skills of relating between the real estate listing and what is to expect in reality will improve. An in-person visit will still be very important, but you will be able to screen and pre-select much better based on photos, 360º-walkthroughs and videos.  
  • Also, try to make some connections while you are on the ground. Meeting a consultant, a sales broker or an architect in person and discuss a potential investment will be a good basis for collaboration in times you are not around and need to rely on someone. 

Challenge 2: Language

Whereas in places like Portugal and especially within the real estate sector most people will assist you in fluent English, you may encounter problems nevertheless. The common step of double-checking what a local advisor (who may, at times, act in their own interest rather than in yours) told you becomes tricky.

Also, many steps in the investment process are subject to legal requirements. Your respective consultant, broker or architect will always be able to explain anything you need to know. However, it can become tricky when you want to verify primary sources, search for details online or use the original laws. 

Tips

  • Ask for bilingual contracts where possible. The Portuguese version will still be the legally binding, though.
  • Access original information and primary sources wherever possible. Ask for the precise Portuguese term and spelling of a topic that you are going dive in deeper. You can enter it in your search engine and then understand by using your browsers translation function or an online translator like DeepL.
  • Where information is crucial you might want to make use of translated, a translation service that lets you upload your text and choose between different qualities of translations of any language. 
  • When you have no way of verifying, consider getting a second opinion at least. This will reduce your risk of relying too much on a single person.

Challenge 3: Exchange Rates

When making any kind of investment you will always aim for a good relation of risks and returns. That means the more risk you take the more money you should earn. 

However, the equity (your own money) you invest may be in the currency in which your work gets paid, while the investment, any associated costs and your returns (rent, sales proceeds) maybe in another currency. With changing exchange rates these in- and outflows may vary significantly. The effect can be positive or negative and even increased in case of a mortgage.

Tips

  • See past volatilities of the two currencies in question. While past exchange rates cannot project future ones, they will give you an idea of the possible upside potential and downside risks.
  • Plan ahead: What are you going to do when an investment becomes too unattractive over time? Will you keep it and hope for an improved situation in the future or sell to cut your losses? Will you rather realise an unexpected gain by selling ahead of time or sit still and enjoy your growing wealth? Ideally, those decisions are made long-term and with respect to you respective phase of life. 
  • See if your mortgage bank offers protection against exchange rate changes. Some products tailored to foreign investors may protect you from unforeseen costs against small fees. 

Challenge 4: Digital Nomad Glasses 

When you do not spend all-year round in the same location, there is a higher possibility that you live disconnected from locals, their everyday lives and therewith from local dynamics. Places you go will vary less and you will be more likely to surround yourself with like-minded people.

While this might be exactly the setting you selected to invest in, keep in mind that real estate markets are largely impacted by a country’s politics and economy. A small change in those high-level areas (e.g. change of interest rates for mortgages) may easily overwrite a different development on the low-level (e.g. AirBnB rates in central locations) in the setting you are familiar with.

Tips

  • As a digital nomad you will already have developed some routine for connecting when you arrive in a location and disconnecting when you head somewhere else. Try to incorporate checking on local everyday life and the real estate market when arriving or even regularly. This can be through newsletters for foreigners (e.g. Essential Business, The Portugal News) or simply headline screening in Google News (remember to set location and interests). 
  • When you already have invested and you work with a local advisor, ask them to let you know when there are important news in politics or legislation that would affect you investment. This could be a property manager, a local friend or a good accountant.

Challenge 5: Reaction time 

Despite real estate being a long-term investment and an area where things usually do not change by the hour, you may be forced to react quicker than expected. A competitive bidder forces you to decide if you want to bid higher, the painter has a question, an urgent repair has to be made, a potential tenant wants to visit the apartment etc.

Tips

  • Have someone you trust on the ground. This can be an advisor you trust, a professional property manager or even a friend or an engaged neighbour who you trust and could compensate for their time. 
  • Plan ahead: When making your investment or before leaving the city at the latest work with an advisor to work out your personal investment strategy:
    • Are you going to be hands-on on all topics or are you going to save time and trouble chunking off as much as possible to local servicers?
    • What situations are likely to occur over the years when owing an apartment, e.g. tenant change, refurbishment, repairs etc?
    • Are you OK with coordinating different specialists on different topics or will you need a single-point of contact due to time-constraints?

Challenge 6: Visa

The end of the Golden Visa programme for real estate investment in 2023 limits the access ways for non-EU nationals to stay in Portugal permanently. Plans change and while you might not want to seek permanent residency for the time being you might want to be aware of your future options. 

Tips

  • Be clear and stay updated on visa regulations as, for instance, Portugal Digital Nomads Visa or the D7 Visa (‘Retirement Visa’).
  • Research your potential residence alternatives that suit your life and lifestyle, e.g. resident visa, short-term tourist visa, temporary stay visa or even a job-seeker visa. 

Challenge 7: Moving without buying

Surely the possibility of moving into your own apartment or kicking-off your first stay in a new country with a great investment seems intriguing. However, investing with limited knowledge of a location and only brief experience in living there stipulates an avoidable risk.

Tips

  • Consider moving without buying. See your time as a renter as a way to flexibly chose different neighbourhoods, find your preferred living situation and collect experience in the local real estate market. 
  • This will help you to make more informed decision on any future investment and you might even remain a happy and flexible tenant whilst buying and renting out to others in the future. 
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