Investing in real estate can be a lucrative venture, especially in a country like Portugal, which boasts a thriving property market and a growing economy. With prices on the rise, savvy investors are looking to technology to improve their returns. In this article we’ll discuss common mistakes when purchasing property and the benefits of utilizing online tools when purchasing an investment property in Portugal. We’ll touch on the basics of understanding potential yields, property comparisons, and the significance of price per square meter in helping investors make smarter buying decisions.
When novice investors buy an investment property, they often focus solely on the property price and compare it to other properties in the vicinity to assess its market value. However, this approach barely scratches the surface of the wealth of information that experienced investors consider before making a purchase. An essential factor to consider is the price per square meter of the property. For instance, you might come across two villas for sale in the same neighborhood with different prices. Looking at the price per square meter, you’ll notice that one villa is significantly larger, making it appear more affordable. Let’s take a look at the following properties as an example. The second property has a lower price than the first, but when you consider the price per square meter, you’ll realize that the first property is 21 square meters bigger, making it a better investment as you get more value for your money.
If you intend to generate passive income by renting out the property when not in use, the occupancy rate is a crucial factor to consider for short-term rentals. How frequently a property is expected to be rented out is arguably more important than the rental rate itself because a high rental rate is irrelevant if there is no demand in the area. Let’s consider two properties with the same daily rental rate. However, the second property has a much higher occupancy rate, resulting in a higher yield for the investor.
Occupancy rates for long-term rentals are not as crucial, especially in Portugal, as there is typically high demand for long-term rentals. In such cases, it becomes essential to analyze which areas offer the highest rental rates compared to the purchase price. For example, some areas might be experiencing a real estate bubble, where rental rates have not kept up with selling prices. On the other hand, there are areas where you can earn more money due to higher daily rental rates and occupancy rates in relation to the property’s purchase price. To assist you, we have compiled a list of the top investment areas for long-term rentals, ranked by rental yields.
The above numbers represent the average of all properties in a particular area. As you can see, the most popular places are not always necessarily the best places for investments. If you look deeper into the data, you can find the best areas within a particular region and the best type of property to buy in each region. For example, in the Algarve the price of properties is increasing faster than the rental rates but there are pockets in the Algarve and certain types of properties where you can earn higher yields if you know where to look. Write us to learn more.
If you are a foreigner, mortgages are available for purchasing investment properties although you want to validate that property as a good investment prior to purchasing it. One way to achieve this is by calculating your mortgage payment and comparing it with the rental and occupancy rates to determine the remaining income after paying off your mortgage. Buyproperty.com includes this information for every property available online throughout Portugal.
While rental yields are important, Portugal is still growing at such a pace that the appreciation on a property will typically outweigh any rental yields.
Portugal has undoubtedly emerged as one of the top investment destinations worldwide, owing to its perennial sunshine, beautiful beaches, and exceptional lifestyle. While generating rental yields in such an environment is relatively easy, maximizing profits like a professional investor requires leveraging additional property data to make well-informed buying decisions that significantly enhance your investment returns.
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Scott Kirk is the CEO and Founder of Buyproperty.com which provides insights and analysis using machine learning to help investors make smarter buying decisions.