Buying in Portugal - a good time or wait?

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emmage

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We are thinking of buying a property in the western Algarve. We are thinking of paying up front for it (have savings) and using it for one month and renting it out for the rest of the time. There is a managment company who organise the cleaning and upkeep for about €8000 per year...the rental is good and we've rented there a few times. There is a spa to be built in the next two years also. This is an example rental of a similar villa.

Rental periodsUp to 6 peopleUp to 9 peopleJanuary - February (half term)£600£700February (half term)£700£850February - Easter£650£800April - Spring break£800£975Spring break£1000£1200June£800£1000July - 31 August£1250£1500September - Autumn Break£750£900Autumn Break£800£1000November - Christmas£800£950Christmas/New Year£800£1000Easter£900£1100



Do you think we are mad? Should we keep it in cash instead? We have small kids and so we know we would get alot of use over the years and as interest rates on saving are so bad, would we be as well to put it away in property abroad?
The property market has not decreased much there in comparison to here?
Any advice?
Thanks
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We are looking at the Algarve at the moment and hope to buy very soon but in today's ecomomic climate I think you should think seriously before you do so. You say you have two young children who will need to be educated and probably put through college. Our youngest is now going into her third year and putting three through college really drains the funds, especially if they are living away. As we are obviously older than you and have come into some money we are able to do this now. Give it some more thought.
 
You say the rental is good. How do you know? Have you seen the book keeping of multiple other property owners? And the bookings for 2009? Or are you just going by the asking price of one other villa. It may be an obvious thing to say, but actual income = actual rate * actual occupancy. I would only be looking to do this if your personal use (saved rental from not renting other properties for one month) plus your real rental income for the next 5 years from letting would stack up very favourably after costs when compared against an alternative investment yielding say 4.75% (which you can easily get 4.5%+ on long term 5 year Euro deposit/ bond). I wouldn't be looking for capital appreciation for some considerable time. If anything the capital risk is still on the down side IMVHO. So I'd recommend talking to the neigbours/ other owners next time you're out there.
 
emmage said:
Do you think we are mad? Should we keep it in cash instead? We have small kids and so we know we would get alot of use over the years and as interest rates on saving are so bad, would we be as well to put it away in property abroad?
The property market has not decreased much there in comparison to here?
Any advice?
Click to expand...
You probably are mad if you are buying a new villa from a developer in the current climate.
I'd say forget any promise of rent and go down the road and buy a second-hand place for half the price. At least you'll know what is around you and what shape it's in. You'll also save the hefty management fees that are not guaranteed to get you a shilling in rent.
If you post details of how much you are paying for the place and where it is etc, other posters may be able to give you specific advice as to whether you are mad or not!
 
No do not invest in Portugal. Keep your cash. You will want to see other places as time goes on with your young family. You are tieing yourselves into an unnecessary noose. We have been there, there are too many unscrupulous agents who are only too willing for you to part with your cash, will offer you everything and none of it is true. Once you part with your initial deposit that is the last you will hear from the company. Believe me. Portugal is a poor country relying on tourists who flock in every year but remember the season is very short June to Sept no more. I'm telling you. Believe me these rental incomes that agents talk about are added on to the price on a villa or apt. Buying in Portugal, firstly these estate agents and developers are not regulated and they can charge the earth. Plus on top of your initial villa price remember to add a further 10% for taxes etc. If you go down mortgage route to secure a mortgage if you buying off plan and your villa is a 2 year build you have to reapply every six months for your mortgage approval. It's not worth the headache. DO NOT DO IT!!!!!!!!!!
 
My advice would be:
  • Buy a property solely on the basis of it being a family holiday home (one that you are prepared to go to each year)
  • Ignore rental income. You might rent the property for two months (total) in the summer, but don't depend on rental income outside that. If you can afford the purchase on that basis....fine. Any rental income over that is a bonus.
  • Do not buy a new/incomplete development. There is plenty of developed property for sale where you can negotiate hard on the price and where you can see the completed property.
  • In the current climate there are plenty of distressed sellers. Offer 60% of asking price, with a time limit, and see what happens.
  • Be very wary of agents. Differing agents will often have the same property on their books at different prices. Be particularly wary of rental promises. Most are fiction.
  • €8,000 seems an outrageous management charge. Insist on a % of the rental income they generate.
  • Remember the additional costs such as local taxes, insurance etc.
  • If instead of buying, you were to rent there say 6 weeks a year (how often will you use it), I guess that it might work out less than the annual total maintenance costs and you still have your capital. Do the sums.
  • Do not expect this to be an investment (unless you find a really distressed seller willing to accept a very low offer).
Best of luck.
 
Wow, there's alot of advice there...thank you all...
Just to answer your questions...the complex is new, the houses are built first and then the spa will be built. Its called Alma Verde...they have a website. The one we are interested in is €580,000 and its not built yet - it was €620,000...

The plan would be to go out with the kids on my own for the month of June (5 weeks) and rent it out the rest of the time...assuming that we won't get full rental. We are renting there in August this year and its £1800 plus pool heating per week... So we wouldnt be using it as our family holiday as we would go away in August with my husband. We probably would do it mortgage free but we'd need to rent it out to cover the management fees and they are hefty.

I know it was mentioned not to buy in a complex but I suppose as I will be travelling alone with the kids I would like the security of having neighbours around.

Conan made the point that if I'm just renting for 5 weeks that it might be cheaper to get a long term let and maybe you're right...

We still don't trust the Irish banks and so I suppose it was a way of putting away some of our money in case the banks go belly up.

Would France be a better option or should we keep it in cash still?

thanks for all of your advice to date.
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Emmage
I don't want to dampen your spirit but from Google Earth Alma Verde really is in the middle of nowhere, you still have to get into your car and drive to Burgau for your nearest village, Lagos is quite a distance. You would be on your own with the kids in June cause most schools are still open & parents would not go until end of school year. Its very isolated and for that money you could get yourself a villa in Lagos, on the beach, near shops. Palmela where we invested in Central Portugal in 2006 is still not finished, just as you describe huge complex, on the forum one woman & her kids were the only people there for their holiday. It was to have a 4star hotel etc. but its been shelved. It was supposed to be eco this & that etc. but it looks now it will be 2013 so people are told before its finished. Alma Verde will not get off the ground for a long time. That's hugh money for that part of Portugal, bet the locals would pay a third of that. I'm sorry but rentals are way out of line, people will not pay when property is not near beach. DONT DO IT. It just doesn't add up. Too expensive. Good luck.
 
I agree completely with the last two posters. This makes absolutely no sense, particularly in the current climate. Please think about the following points:

1. You are proposing to buy in an unfinished development; you have no idea how many of the properties will be actually finished and occupied.

2. You are going to buy a new project that the developer is selling at the price he had planned to sell at before the crash. You can buy the same thing in an existing development for considerably less if you look around.

3. If you buy in an existing mature development you can see what the finished product is like, and you avoid living in a building site for the next ten years.

4. If you buy the proposed development you will be in an immediate negative equity situation of up to fifty percent and with no hope of making anything from the investment. On the other hand, if you buy cheaply you stand to make something when the upturn comes (whenever that may be).

Your original post posed the question as to whether or not you are mad. In my view, if you go ahead with this scheme, you have more than one screw loose. Sorry to be so blunt!
 
morning123 said:
Emmage
I don't want to dampen your spirit but from Google Earth Alma Verde really is in the middle of nowhere, you still have to get into your car and drive to Burgau for your nearest village, Lagos is quite a distance. You would be on your own with the kids in June cause most schools are still open & parents would not go until end of school year. Its very isolated and for that money you could get yourself a villa in Lagos, on the beach, near shops. Palmela where we invested in Central Portugal in 2006 is still not finished, just as you describe huge complex, on the forum one woman & her kids were the only people there for their holiday. It was to have a 4star hotel etc. but its been shelved. It was supposed to be eco this & that etc. but it looks now it will be 2013 so people are told before its finished. Alma Verde will not get off the ground for a long time. That's hugh money for that part of Portugal, bet the locals would pay a third of that. I'm sorry but rentals are way out of line, people will not pay when property is not near beach. DONT DO IT. It just doesn't add up. Too expensive. Good luck.
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To be fair, thats what we want! We've stayed in Lagos before and whilst I like it there we like being removed a little. Theres a huge pool and so we would only fancy doing the beaches occastionally anyway so thats not a problem. We love the resort, having stayed there before, and its not that under developed. Ok so no SPA yet but 70% of the houses are built and some of the owners live there all year round so its not a case that I would ever be on my own. Was there just after easter and there was about a 40% occupancy. Didnt feel isolated at all. People DO pay that rental...we are one of them that did and we met lots of families that did this year too..I am heading out for a month with the kids soon so we'll see what its like peak season. We've stayed at the quinta end too and didnt like it at all, every where we turned we met someone we knew! When we go on hols we like to escape from it all!!!

But to go back to the original point, I do now see the merit in renting instead for the month and putting our money on deposit! I suppose travelling with 4 kids you have to bring soooo much stuff!!! So I was thinking if we could lock a cupboard and fill it with our stuff if would be lovely! But not at that price I guess!
Thanks for your response.
E
 
If you are looking at spending that sort of money in Portugal did you look at Cascais? It's a gorgeous place just outside Lisbon. There is a regular commuter train from Lisbon, so the necessity for a car is reduced.

I only visited there, but to me it was a far more appealing place to buy a property and with much more activities etc., especially outside the main holiday months, than the Algarve.

http://www.travel-in-portugal.com/Cascais/



Murt
 
Emmage
You really only want a place to store your kids stuff and hop on a flight with bare essentials. It's a bit of a dream in today's world especially with 4 kids. Rent don't buy. You're in a good position with cash, don't throw it away. There are just too many pitfalls with purchasing abroad. Don't listen to agent's talk. Good luck.
 
Keep a cool head. Separate the finances from the dream. The agents will try to sell you the dream. You can still have the dream without the agents.

Now you said that house would cost 1800 / week peak season. You'll be really lucky to get 6 weeks at that rate during the school holidays and another 13 weeks at half that rate IMVHO unless someone can prove to you otherwise by showing you audited book keeping over a long period. (Bear in mind you've pre-booked 5 weeks of high season rental for your own use so you get no income from that.) That'd be an annual rental income of around 22.5K before tax and costs best case. The agent takes 8000 costs straight of the bat = 14K5. Then property and income taxes, insurance, accountants etc and you'll be looking at a lot less. Not even taking into account the possibility of capital depreciation, maintenance etc. etc. It'll possibly work out just about break even if the experiences of a friend of mine are anything to go by, and potentially a lot worse.

The alternative is to rent your dream villa every year and also possibly in different locations.

That'd cost you 1800*5 = 9000 euros.

if you want dream storage, you can rent the storage too..... you don't need to buy a house to get storage. There's rental lock up storage in Lagos http://www.u-store-portugal.com/ Or you could do a deal with the concierge or a neighbour. That sure ain't gonna cost you another 1000. So the very best you could hope for is to save 10K tops on holiday costs.

If you're really afraid about banks falling over, then spread your deposits around banks and over multiple accounts so that you are covered by government deposit protection schemes. You can currently get 4 - 4.5% quite easily on long term cash 5 year term deposits in Euros at near zero risk. Even from a triple A rated bank like the Rabobank with 100% government guarantees on the first 100K. See [broken link removed] Don't believe the doom and gloom about financial markets and banks failing. If you're sensible you can protect yourself and your savings and still earn decent real returns considering that inflation is non existent. No private individual has yet lost money on protected deposit accounts due to bank failures. Not even in the US.

So on 580K worst case investment scenario on a pure cash deposit @ around 4% that would be around 23K2 cash minus 25% DIRT tax minus your 10K for your holiday and you're still 7.4K up on the deal at near zero risk and zero work. Of course you could potentially earn more on your investments by taking slightly more risk, and I'm not suggesting by any means that you should keep everything in cash, but this just illustrates probably the worst case for renting, which is still almost certainly better than the best case of owning the villa in your situation.

It just doesn't stack up unless you can get a place for half the price, or you assume completely irrational amounts of rental income, or you can get a whole load more out of season personal use [but even then, out of season rentals in resorts cost a pittance].

Disclaimer: I don't work for the Rabobank, but I am a business and personal customer, and I do have a large amount of cash on deposit with them (because of their AAA rating).
 
Martin77 said:
Keep a cool head. Separate the finances from the dream. The agents will try to sell you the dream. You can still have the dream without the agents.

Now you said that house would cost 1800 / week peak season. You'll be really lucky to get 6 weeks at that rate during the school holidays and another 13 weeks at half that rate IMVHO unless someone can prove to you otherwise by showing you audited book keeping over a long period. (Bear in mind you've pre-booked 5 weeks of high season rental for your own use so you get no income from that.) That'd be an annual rental income of around 22.5K before tax and costs best case. The agent takes 8000 costs straight of the bat = 14K5. Then property and income taxes, insurance, accountants etc and you'll be looking at a lot less. Not even taking into account the possibility of capital depreciation, maintenance etc. etc. It'll possibly work out just about break even if the experiences of a friend of mine are anything to go by, and potentially a lot worse.

The alternative is to rent your dream villa every year and also possibly in different locations.

That'd cost you 1800*5 = 9000 euros.

if you want dream storage, you can rent the storage too..... you don't need to buy a house to get storage. There's rental lock up storage in Lagos http://www.u-store-portugal.com/ Or you could do a deal with the concierge or a neighbour. That sure ain't gonna cost you another 1000. So the very best you could hope for is to save 10K tops on holiday costs.

If you're really afraid about banks falling over, then spread your deposits around banks and over multiple accounts so that you are covered by government deposit protection schemes. You can currently get 4 - 4.5% quite easily on long term cash 5 year term deposits in Euros at zero risk. Even from a triple A rated bank like the Rabobank with 100% government guarantees on the first 100K. See [broken link removed] Don't believe the doom and gloom about financial markets and banks failing. If you're sensible you can protect yourself and your savings and still earn decent real returns considering that inflation is non existent. No private individual has yet lost money on protected deposit accounts due to bank failures. Not even in the US.

So on 580K worst case investment scenario on a pure cash deposit @ around 4% that would be around 23K2 cash minus 25% DIRT tax minus your 10K for your holiday and you're still 7.4K up on the deal at near zero risk and zero work. Of course you could potentially earn more on your investments by taking slightly more risk, and I'm not suggesting by any means that you should keep everything in cash, but this just illustrates probably the worst case for renting, which is still almost certainly better than the best case of owning the villa in your situation.

It just doesn't stack up unless you can get a place for half the price, or you assume completely irrational amounts of rental income, or you can get a whole load more out of season personal use [but even then, out of season rentals in resorts cost a pittance].

Disclaimer: I don't work for the Rabobank, but I am a business and personal customer, and I do have a large amount of cash on deposit with them (because of their AAA rating).
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Martin
Thanks for that...You have really made us think twice with those figures...I suppose, we could never afford the dream, but now we are in a position to, and especially lucky in this current climate, so we just were going to jump in...so now I need to put a post on another board to work out where to put it all...dont' want to put it all away for 5 years but are considering putting a chunk of it in Rabo due to its safety.
Many thanks to you all for your solid advice
E
 
Emmage, I have to agree with Conan. €8000 per annum management fee sounds like a "special" price for the Paddys. That's about €660 per month. Sounds crazy.

That alone would have the alarm bells ringing for me! (Not meant as a lecture-just a bit of advice). - Lex.
 
Your mad! I think you want to believe this is good and are a bit blinded by the excitment of it.
If your worried about Irish banks put your money in Rabo or a similiar very secure bank and get a deposit return. You can get better rates for 12/24 mth terms.
You will lose money on this. Sounds like that money is burning a hole in your pocket. Even the price reduction sounds bad in current climate.
AVOID!
 
Your mad! I think you want to believe this is good and are a bit blinded by the excitment of it.
If your worried about Irish banks put your money in Rabo or a similiar very secure bank and get a deposit return. You can get better rates for 12/24 mth terms.
You will lose money on this. Sounds like that money is burning a hole in your pocket. Even the price reduction sounds bad in current climate.
AVOID I say.
 
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