Does anyone own real estate in Portugal or Italy?

Question

Greetings Investors!

I’m interested in the European rental market, either vacation or leasehold. Does anyone have experience with buying in Europe, more specifically, Portugal and/or Italy? Would you be willing to give feedback about your experience? Would you do it again? What are some of the pitfalls to avoid?

Many thanks!

Mark C. · Answer

Hello all,

I am currently renting in Coimbra since November, and looking for my first live-in deal in Portugal. I was in Caldas da Rainha for about 5 months prior to that, and I think that the Silver Coast (between Lisbon and Porto) offers relatively low price for good quality options. As in America, the mid-sized town (like Aveiro, Coimbra, Leiria ~70-120k people), and smaller towns (like Caldas da Rainha at 30k people) are getting more interest and offering better value and ROI, *IF* you can find the right niche. This may be for tourism like Nazare, Peniche, Figueira da Foz, or Fatima, or for retiree expats like Caldas da Rainha. There are many towns like this.

I am originally British, but also American, did 26 years in Colorado. Between my CPA girlfriend and I, we have 11 properties there, some are set up as rent-by-the-room. Since the Denver metro area has similar affordability issues as Portugal, and there are plenty of ugly houses here, I was hoping to do fix & split (buy ugly, live-in renovation, start renting by the room, then move on to the next one). There are a lot of migrants coming to Portugal, and were hoping to specifically target these splits to them as short to medium term rentals.

We have a couple of fellow investors in Colorado that are struggling to find deals, and hoping to bring some of that cash over into a partnership here. This is very attractive to several of them since they have SDIRA and Solo-401k funds.

From what I have seen so far there are limited loan options here. As @Diogo Candido said, max 85% LTV, though this can be hard to achieve because the bank valuation will be below sale price in hot markets, so realistically you would be down to 75-80% LTV. Americans that are recently migrated were having problems finding lenders to go over 50% LTV, though this restriction lifts after about 6-12 months, and does not apply to migrant Europeans.

@Ryan Morris if you are referring to http://idealista.pt , it's a bit of a crap shoot. I found a lot of no-reply / slow-reply, and scams when we were looking for rentals, and when we contacted sale listings for more info. Portugal has no MLS, so agencies list their own pool, and are very protective of it. I found it easier to contact several local agents when moving to Coimba, the competition seems to help them focus!

-- Mark

Luis Bivar Ramos · Answer

Hi Ryan, try www.imovirtual.com, there you will find posts from several agencies and you can set alerts on specific types of business. Just choose your filters and create the alert.

Diogo Candido · Answer

@Ryan Morris for what I've been seeing it is student rentals (renting by the room) in towns outside of Lisbon and Porto where the properties and labour are cheaper giving you a better ROI (I've seen experienced investors being able to get 20-40% cash on cash), the thing here (Portugal) is that the market is not transparent (i.e it's not public record who owns a property, when did it transaction last and for how much), making knowing how much a property is worth more difficult since you can only run comps on listed prices and not sold prices, and there is no notion of what a cap rate or an NOI is, if you look for listings they will always refer to "yield" which is GI over asking price. Also in those towns it will definitely be harder to get real estate agents and contractors that speak English.

That being said don't let it discourage you, you might be able to form a very good team there and there is a lot of opportunities where you can get very good returns in other areas, inclusively greater Lisbon, greater Porto and Algarve where it will be much easier to find English speaking professionals, plus interest rates are really low, to give you an idea I've recently done a mortgage for primary residence, 85% LTV, at 1.2% flat interest rate for 30 years.

At the end it will depend on your profile as an investor and what you are looking for in terms of being turnkey or how much renovation/construction work you are willing to undertake and how management intensive you want it to be.Hope this answers your question, feel free to ask any other questions, as always, I will try to answer as best as I can!

Diogo Candido · Answer

Greetings @Ryan Morris,

I'm Portuguese, leave and work here in Lisbon. I can't tell you anything about the Italian market but the Portuguese one is going strong, the most expensive areas (centre Lisbon and Porto) seem to be softening up a bit, especially due to the STR restrictions, if you have a property inside a "short term rental restriction area" you can no longer sell it based on the income it is generating on Airbnb because the license will expire when the title changes. I wouldn't call it a generalized bubble but a couple pimples.

That being said it will differ greatly depending on what type of property and location you want to buy. The generalized advice would be to get your tax id and bank account open first, get a pre-approval on a mortgage to know how much you can qualify for and under what conditions. Then go look at properties, please be aware that there is absolutely no barrier of entrance to become a real estate agent here, therefore you have a lot that don't know what they are doing or talking about, avoid those.

Forgot to present myself, I work with foreign investors and investment groups here in Portugal, helping them with the process from A to Z but specialize in financing as a mortgage broker.

Hope to have helped somewhat, feel free to ask any other questions, I will try to answer as best as I can!

Diogo Candido · Answer

@Ryan Morris first of all sorry for the late reply, I don't know why I never came back to this thread until now because @Mark C. identified me, so thank you Mark!

I'm located in Lisbon but I like Porto, there are good fundamentals there. The cost per unit will vary greatly depending on if you are talking about getting one single unit or getting a multifamily property and the type of neighbourhood you want to be in. I would like to add that like @Mark C. said there is no MLS and the price a property sold for is not public, which makes running comps a little bit different since you can only see listed prices and not sold prices.

Not going too in-depth the gist is the rental market is becoming stronger but beware that the prices being practised right now, especially in Lisbon and Porto, are due to lack of supply and are starting to be too high for Portuguese people (couples can afford if both are working but usually they will have 40-50% of income going to rent, if it's one single person they will need to have roommates) and new construction is peaking up so beware on the underwriting. Also, Portugal is a country of buyers, not renters, things might be changing within the younger population but it becomes hard to justify rent if the mortgage instalment would be significantly lower than the rent due to the low-interest rates and "cheap" new construction (the feasibility of these projects was underwritten at the market value of 3-5 years ago, which was lower).

That being said you can find very interesting deals if you know how and where to look, don't be afraid of putting an offer in even if it's low! I have a friend (investor) that after running his numbers puts in an offer, usually about, 50% below asking price, also I know of an agent that represented a lady buying an apartment in Porto listed for 1.000.000€ for 400.000€, most listed prices are wishes not representations of the market, don't let them fool you!

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Now going into @Mark C.,

If you do your underwriting correct and are able to negotiate the price down, the bank appraisal shouldn't be an issue, even if you have to pay for 2 or 3 of them (met an agent the other day and he told that recently he was selling an apartment here in Lisbon for 250.000€, first appraisal was 180.000€, they ordered a new one, second one came 220.000€, they ordered a third one and that came 250.000€), banks are sitting on cash they need to lend, they are extremely liquid at the moment, the key for appraisals is learning how they do it and helping them (read, do it for them), have someone there (you or the agent), talk with the appraiser, explain what you need, show/give him the comps and how yours differentiates. Keep in mind that although you pay around 250€ per appraisal, the bank hires a company that hires the appraiser and he makes significantly less, they are not going to waste too much time on the report and I understand, for that money, I wouldn't either.

I don't know the specific cases you are talking about but 50% LTV is more or less guaranteed for a foreigner to get as long as they show some income, so I understand that whoever they spoke with just gave them that (most managers and salespeople within the banks are not used to foreign clients so they don't even know what to ask for in order to give the financial or risk department more assurance), but it's possible to get more, I have a friend from the US that got a loan under personal name for investment (not for his primary residence) at a little bit over 60% LTV without being a resident here. In this case, they need to try and find a mortgage broker or a banker that is familiar with the process, I would go for the mortgage broker so you are not tied to only one bank, besides, the broker only gets paid if the deal closes (so they have an invested interest) and is the bank that pays him/her, not the client.

I like your strategy, were you thinking about keeping the property and just keep "collecting" them or sell it and move on?

I like both https://www.idealista.pt/ and  https://www.imovirtual.com/, but I use them as a starting point, I very rarely contact anyone through it due to the high no-reply/slow-reply rates.

Please take everything I said with a grain of salt, it's my opinion (don't sue me bro!), that being said I'll check this more often, if you need anything just reach out! Almost forgot my little plug -> I'm a mortgage broker here in Portugal

Ryan Morris · Answer

Thanks, Mark! Great info...

James Wise · Answer

lol, I only know of one real estate investor in Portugal.

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Ryan Morris · Answer

Also, do you know if idealist.com is useful?

Ryan Morris · Answer

That’s great information! I like Porto. It seems to have a great economic base. What’s the entry level cost of one unit there? Also, where are you located? Thanks!

Ryan Morris · Answer

@Diogo Candido Obrigado! I’m clearing some things off my plate here in the USA.

What investment types are giving the highest cap rates right now?

Does anyone own real estate in Portugal or Italy?

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