As I have told you before, at the end of 2016, I have invested 100k in my first real estate property in the beautiful city center of Porto, Portugal. I bought it before it was built, so we were finally able to start cashing-in in the beginning of September 2017. We have decided to hire a property manager specialized in short-term rentals and until now it has been going great. Check out my property in Airbnb!
Here is a quick summary of the current situation, with actual values until January 2018 and estimated values for the future months:
I will have around 6400 Euros net per year which represents a yield of 5.9% on my initial investment (my initial investment includes not only the cost of the apartment, but also taxes, furniture, etc. anything I had to pay before the apartment was ready). It sounds like a pretty good investment to me! However, I can still improve it, as I do not have the most efficient situation in terms of taxes and I can maybe still negotiate the cost of the property manager.
This experience has been very exciting! At first, we were concerned and a bit annoyed because there were some delays in furnishing the apartment, so could not start cashing-in in August 2017 which is a pretty good month for tourism. But, once everything was settled, there is not much you have to do, apart from seeing the money coming in into our account every month! With so much free time, we have decided to do a quick analysis on the strengths and risks/weaknesses of our investment.
- New apartment in the city center (my opinion is that the city center hardly ever devaluates, in particular in Portugal where prices are still low and the reconstruction of the city centers in big cities started very recently)
- Perfect for tourism but also can be rented long-term (we were contacted by an agency with an offer for our furnished apartment which would yield us 5500 Euros net per year)
- Tourism is growing at very high rates in Portugal and this growth is expected to continue in the future
- Legal changes in short-term rental laws in Portugal (tourism has been the main driver of growth so I think this risk is small but it should be considered)
- Small apartment with no parking space
We have weighted the pros and cons and we have decided that it is a really good investment and a niche that we would like to focus on: small apartments in premium areas in cities we are familiar with. This is why, a few days ago, we have decided to buy property #2, a very similar apartment to property #1, for the same purposes: short-term rental. We were a bit unlucky this time (or lucky in the first time) as the prices are quickly increasing, therefore the price of this property is 35k higher than the first one (auch!). But, whereas in the rental property #1 we had to wait 1 year until we started cashing in because the apartment was not built when we bought it, rental property #2 is almost built and we hope to start cashing-in before July. All the same, instead of a 5.9% annual return, we are expecting around 4.5%.
Our following steps are to check with a tax adviser if we can/should create a commercial company for our real estate investments so we can deduct the costs of the investment for tax purposes. Currently, we are paying a significant amount of taxes because we cannot deduct the costs that we have on the investment. At the same time, with 2 apartments, we hope to be able to negotiate the cost of the property manager.
I am so excited about this project! Not only it is profitable but also I am learning so much about real state, Portuguese laws and about taxation. I fell I am an expert by now, so feel free to ask me any questions related to these topics!