For investors looking to achieve the best return for their outlay, buying a property in Portugal is more accessible than buying a property in the UK, says Stephen Anderson, Managing Director of Portugal based property investment company, Infinito Real.
“It’s common knowledge that buying a property in the UK is not as easy as it once was. Part of the issue is funding of any purchase and, in particular, for investment purchases the selection of mortgages are few and far between and, when they are available, the criteria is very stringent.” says Stephen.
“When purchasing in Portugal, you don’t have to specify the purpose of the purchase. Mortgage options are straight forward with the choice of either an interest only or capital repayment loan, although an interest only loan is harder to obtain for higher loan to value mortgages. The banks now look seriously at the income of each client and, if there is a high risk, will in most cases refuse the lending or lower the amount they will lend and exclude the interest only period.”
Examples of costs, income and expected profit are illustrated with figures supplied from Infinito Real using the average cost of a two bedroom apartment at Vilamoura Golf Course at €228,000 and incurring acquisition costs of €15,400.40.
Option 1 – 100% Finance, 3% Interest rate, 30 year term
Repayment monthly instalments – €961.00
Interest only monthly instalments – €570.00
Option 2 – 70% Finance, 2% Interest rate, 30 year term
Repayment monthly instalments – €589.91
Interest only monthly instalments – €266.00
Running costs will amount to roughly €3,000 per annum assuming the property is rented.
Expected Income (net of 15% commission charge):
High Season rental – 8 weeks x €800 = €6,400
Golf Mid Season rental – 8 weeks x €640= €5,120
Winter Rental – Potential for long term winter lets for 3 or 6 months – €650 per month =€1950 / €3900
Total Rental Income Potential – €15420.
Net profit per year
(Repayment) Total running costs = €14,532 Profit – €888.00
(Interest only) Total running costs = €9,840 Profit – €5,580
(Repayment) Total running costs = €10,078.92 Profit – €5341.80
(Interest only) Total running costs = €6,192 Profit – €9,228.00
Stephen concludes, “these options illustrate the main difference in how a lot of buyers perceive property investment. Although many would be concerned that the high levels of finance in option 1 leave little room for a bad rental year, the benefit is that a relatively small amount of capital outlay is required. Assuming the property increase in value each year the investment return is very high.
The second option is a much safer option, and has plenty of room for a bad rental year. In fact the peak rental periods alone would cover the costs, so the operating expenses are more often than not going to be completely covered. “