Rental Income - Planning and Expectations

Rental Income - Planning and Expectations 

Many clients take advantage of the rental market in Portugal to cover their costs and produce an income but how much should you expect and what decisions do you need to make? 

Portugal continues to remain a sought-after destination for holidaymakers and, as such, many clients prefer to supplement their income by renting their properties. First of all, you need to ask yourself how often you want to use the property yourself - and when? If you are unlikely to use it yourself then you can always consider a long-term rent.

Long-Term Rentals

Long term rentals offer less hassle and cost than short term rentals. Once a tenant has been found then they would normally pay all utility bills and, in an ideal world, offer a monthly sum which is reliable and predictable. Tenants will often stay for two or three years and the role of the owner is simply to ensure he/she is paid. The owner will still pay the rates and the condominium fee but everything else would normally be paid by the tenant. You may find the property is utilised more heavily, especially in the kitchen, as the tenant would be 'living' there. Ensure you use a proper contract and take legal advice in this respect. Usually it is easy to secure long-term tenants as most owners prefer to rent short-term.

Short-Term Rentals

Most owners choose short term rentals as it allows them to use the property whenever they wish. To maximise rental income the owners should avoid using the high peaks (June to September) and other 'holiday periods' throughout the year such as Easter and Half Terms. Owners who can use the property outside of school holidays can enjoy wonderful off-peak weather with less tourists and still maximise their income.  

Short term rentals need constant management. Seeking and monitoring bookings, cleaning, washing, handovers and collecting money. This is where you have to decide how you prefer to do it. Do you wish to have any involvement in this process or hand it over to a company that does either the marketing or the management or both? 

There are many companies in Portugal that will take over the whole process and many that can just provide the management of the 'booking'. Commissions you pay will vary on the service you require. Expect a full package to cost in the region of 40% of any income generated. However, these companies have a track record which will usually mean you can rely on a full calendar of clients. If you prefer to just look after the bookings or you prefer to take care of the management (handovers) then you can save on this sum. 

As a general guide, the majority of clients prefer a complete service although we have many clients who use Airbnb (for example) and then advise a local company when the bookings are coming. You should ensure you have the time to devote to it and run it like a small business. Most rental websites are now using 'reviews' and it is crucial to build and maintain healthy reviews/feedback from the very start. 

Income Tax

Unfortunately, you do have to declare rental income so make sure you have a Fiscal Representative who can help with this. The percentage you pay depends on your circumstances. In the hands of non-residents of Portugal it is taxed at a flat rate of 28% with very few deductions (such as day-to-day running costs) allowed – mortgage interest is not tax-deductible in Portugal.

What Yield Can I Expect? 

It can depend on many factors. The location of the property, the quality of the property and the competition in the immediate area. However, whichever way you do it, we can say that you should expect to receive around 4% to 5% per annum. To put it another way, if you bought a three-bedroom apartment for €400,000 then this should yield €20,000 when it is fully up and running, with a track record, high ratings and repeat clients. The first year is usually less than the subsequent years. You must also always rent in the peak months and utilise it outside of these times. For long term rental the return is similar - take the €20,000, divide it by 12 = €1667, and this is a guideline for a monthly rent. 

The minimum objective of most clients is to cover the costs of ownership. It would be a failure if this isn't achieved. The only scenario where we have to be careful is if you take a mortgage. If the term is short, then the monthly repayments can outweigh the rental income, so it is important to consider this if you go down this route. 

How can OliveHomes.com help? 

We don't offer a rental service! This is a deliberate decision acknowledging that there are already established companies that provide everything you need, have a fantastic reputation and a proven track record.

Instead, what we do have is a panel of companies across the Algarve that we recommend to suit each client’s circumstances. Be it short term, long term, applying for the AL licence, introducing a fiscal representative or purely management. When you are with us we will arrange for a representative of these companies to meet you and provide a presentation of their services. It allows us to remain independent and pick and choose which company is best for you. Much like lawyers, builders and furniture companies - they need to provide a perfect service to our clients to remain in contention for the next client. We are pleased to report that they do.

If you have any more questions on rentals or you would like to have a more detailed analysis on a property which you wish to purchase, then let us know and we can help. With the expertise of the OliveHomes.com team and backed up by our chosen partners we have everything under control to ensure your property pays for itself, pays for your holidays and has a kitty for a rainy day - not that we have many of those here!