Investing in Albufeira, Portugal

Mrs_Doyle

Hi,

I am in my early (closer to mid ) 20's.
I know that any mortgage offered to me would not get me very far in this country, and so I am considering taking a mortgage of 100k and spending it in Albufeira, Portugal.

My plan would be to purchase an apartment, off plan or already developed, from between 50-80k, to do it up, and to sell it after no more then 6-8 months, making a profit of no less then 10k.

When I say 'do it up', I intend to fully furnish the apartment, and also, if possible, I would like to make the best use of the living space provided.

A friend recently turned a 1 bed apartment into a 2 bed by reducing the living area (which was really big and spacious) and putting up a dividing wall, making a whole new room - which they then used as an extra bedroom.

My Dad is a carpenter and my brother is an electrician, so labour would be cheap, if not free.
I also have a friend whose parents own a couple of properties in Albufeira, and would hopefully be willing to point me in the right direction with regard to obtaining cheap supplies, etc.

Now I know I will lsoe my First Time Buyers if I go this route, and that does concern me.

I discussed it with my BF, and the plan was for me to purchase now, abroad, and when we want to buy at home he can purchase under his name.
He already has a substantial deposit tucked away, and will be able to avail of a 1st time buyer benefits.

Also, I can add to the deposit with any profit I have made.

We have already decided that our first home will not be a 4 bed semi dream house in D4.

We are more then happy for our first home to be a 2 bed apartment (or something similar) somewhere near Whitehall, Santry, Glasnevin, Finglas, Artane etc - and to work from there.
He should be aproved for a mortgage that would cover the cost of such a property. (Hopefully)

So... what I am asking is, has anyone here done something similar?

Have I overlooked an aspect that is glaringly obvious to anyone with a bit of experience?

aniascor

10k does not seem like a worthwhile profit for 6-8 months of work. Especially when you consider how much it will cost you to lose your FTB status. (Interest relief on your mortgage will be more than halved, you may have to pay stamp duty, etc.)

And you need to check carefully whether you would owe any CGT in Portugal following the sale.

aniascor

One more thing - not sure if it's a typo - but you mentioned getting a mortgage of 100K, yet paying 50-80K for the property. If the property costs 50K, the mortgage will be 50K. The mortgage will not cover your other expenses, such as doing the place up, flights over and back to Portugal, solicitors, taxes, etc.

Mrs_Doyle

aniascor wrote:

10k does not seem like a worthwhile profit for 6-8 months of work. Especially when you consider how much it will cost you to lose your FTB status. (Interest relief on your mortgage will be more than halved, you may have to pay stamp duty, etc.)

And you need to check carefully whether you would owe any CGT in Portugal following the sale.

Good points, and well made. I hadn't considered CGT.

Ah I couldn't do 6-8 months worth of work even if I wanted to.
I won't be giving up my current job.
I have 30 days holidays which I would use to do up the apartment, and the 6-8 month guideline was the maximum amount of time I would want it to take to refurbish and sell the apartment.

Also, if I was successful and made a decent profit, it would be something I would consider doing again.

penexpers

I think if anyone in a party buying a house is a previous homeowner then the first time buyers status is lost for the house as a whole.

quote from oasis.gov.ie

A first-time buyer is defined as a person (or where there is more than one buyer, each person):
Who has not on any previous occasion, either individually or jointly, purchased or built on his/her own behalf a house in Ireland or abroad;
Where the property purchased is occupied by the purchaser or a person on his/her behalf as his/her only or principal place of residence and
Where no rent is derived from the property for five years after completion of the current purchase.*

I know you sort of covered this by saying "we would buy under his name" but that's something I'd think very carefully about. Only his name would appear on the title deeds to the house and that could lead to a spot of bother down the line.

Mrs_Doyle

aniascor wrote:

One more thing - not sure if it's a typo - but you mentioned getting a mortgage of 100K, yet paying 50-80K for the property. If the property costs 50K, the mortgage will be 50K. The mortgage will not cover your other expenses, such as doing the place up, flights over and back to Portugal, solicitors, taxes, etc.

I am a bit confused now. A friend of mine took a mortgage of 250, but her apartment only cost 230 and the rest of the money was spent on furnishings.

That would be what I would hope to do with a property in Portugal.
Take a mortgage that would be large enough to purchase and furnish, and hopefully still make a profit at the end of it.

penexpers

Mrs_Doyle wrote:

I am a bit confused now. A friend of mine took a mortgage of 250, but her apartment only cost 230 and the rest of the money was spent on furnishings.

That would be what I would hope to do with a property in Portugal.
Take a mortgage that would be large enough to purchase and furnish, and hopefully still make a profit at the end of it.

Yeah, you might get a mortgage for 100k on an 80k property, but then you'd start off 20k in debt (the house would still only be worth 80k). It's pretty dangerous taking out mortgages for more than 100% - in your case the house would have to go up in value by more than 25% for you to make a profit and that's before and CGT is taken into account.

Mrs_Doyle

penexpers wrote:

I know you sort of covered this by saying "we would buy under his name" but that's something I'd think very carefully about. Only his name would appear on the title deeds to the house and that could lead to a spot of bother down the line.

I know what your saying, and I know my mother is going to say the exact same thing.
I am 100% confident in our relationship, and I guess its a risk I am willing to take.
Also, and feel free to correct me if I am wrong, but if we were to do what I said (me buy foreign, him buy here) and then to marry in the future, is it not possible for him to add my name to the deeds of our Irish property at a later date?

penexpers

Mrs_Doyle wrote:

I know what your saying, and I know my mother is going to say the exact same thing.
I am 100% confident in our relationship, and I guess its a risk I am willing to take.
Also, and feel free to correct me if I am wrong, but if we were to do what I said (me buy foreign, him buy here) and then to marry in the future, is it not possible for him to add my name to the deeds of our Irish property at a later date?

Yes, but only if he owns the house in full. During a mortgage, the title deeds are lodged with the lenders (as security) and they probably wouldn't allow someone who isn't party to the mortgage have their name added to the deeds. You'd probably be better off getting legal advice about this though, I may not be 100% correct.

Again, I'd think long and hard about this. Without your name on the deeds you have no legal rights at all to the house. I know someone who, like you, was confident in a relationship (they were engaged and all) and they got a house in the bf's name. The relationship broke down and she was kicked out of the house and lost thousands (she had been helping to pay the mortgage).

Mrs_Doyle

penexpers wrote:

Again, I'd think long and hard about this. Without your name on the deeds you have no legal rights at all to the house. I know someone who, like you, was confident in a relationship (they were engaged and all) and they got a house in the bf's name. The relationship broke down and she was kicked out of the house and lost thousands (she had been helping to pay the mortgage).

Ah that's a good point, and I definitely will give it a lot of consideration.

I am thinking as I type, but could it work if I bought foreign and sold within 6 mths, making profit - he could still buy here.
Now assuming my foreign venture was successful I would consider doing it again, and again if possible.

We could always do that and then buy a house together in 5 years time.
Obviously we wouldn't be first time buyers anymore but hopefully we would be in a position to take the hit.


Just out of curiosity, if you were going to do it, how would you go about it?

And if you have done it, what did you do?

the_syco

Mrs_Doyle wrote:

My Dad is a carpenter and my brother is an electrician, so labour would be cheap, if not free.

Erm, no. Cheap and free if it was here, but you'll have to pay for their flights over and back from there. Also they'll need food, etc.

Mrs_Doyle

Mrs_Doyle wrote:

My Dad is a carpenter and my brother is an electrician, so labour would be cheap, if not free.

Can they work in Portugal?

Afaik, a few countries like France are quite strict on who can do certain works like wiring a house - heck even in Ireland afaik the ESB will not connect a house without a cert from an electrician in RECI. Wouldn't imagine it would be a huge problem, but check it out.

The stamp duty and costs payable there, and the CGT are two important issues that could really eat into any profit. Tbh I note your target is at least 10k - would have though that even the most pessimistic outlook would suggest that most houses here would rise by that amount over 6 months so you could find yourself even further adrift in the market here...

jdivision

You need to consider if a new buyer would have to pay stamp duty on the apartment given it's second hand, also estate agent commissions in Portugal are 6 per cent so you have to take more than 5k out of your profit and finally I doubt if any Irish bank will give you a mortgage to buy abroad if you don't already own here. The Revenue have clamped down on people using their partners name to buy a property and then using a legal agreement afterwards to divide it between them, you could find yourself with a nasty tax bill.

Victor

Mrs_Doyle, I think its a wonderful idea, but I don't think it will work.

Someone local can always do it cheaper than someone not local. What is the basis of your profit estimate, have you researched the local market? Will "doing up" an apartment actually increase its value enough to turn a profit, seeing as buyers have different tastes (they may not like your, say, curtains and will factor in replacing them)? Using family for labour would only work if they are getting a holiday out of it.

What are the local tax laws (I don't think Portugal has CGT, but you would end up paying Irish CGT anyway)? Stamp duty? Property taxes?

Are you targetting the residential or tourist market? Are sales patterns seasonal?

penexpers wrote:

Again, I'd think long and hard about this. Without your name on the deeds you have no legal rights at all to the house. I know someone who, like you, was confident in a relationship (they were engaged and all) and they got a house in the bf's name. The relationship broke down and she was kicked out of the house and lost thousands (she had been helping to pay the mortgage).

Family Home Protection Act will probably offer some protection, as would the Divorce Act.

The_Conductor

We have recriprochal tax arrangements with Portugal- you could actually end up paying Irish CGT on your gain in Portugal (as I imagine you will be remaining tax resident in Ireland).

There are a lot of local factors in Portugal that are beginning to undermine the secondhand property market- particularly property taxes that Germany now charge on German tax residents with property overseas, and the French are doing similar.

With respect of adding new bedrooms to apartments/houses- it is illegal to do this in Portugal without first securing planning permission from local authorities. You can be forced to return even new properties to their original state, if you fail to seek permission in the proper manner.

You are further making an assumption that by buying a new property off-the-plans and spending an amount of money on it that your gain will exceed the amount of money expended in doing it up.

Interest rates in Portugal are rising in the same manner as interest rates are here. It is not a valid assumption that because someone else bought properties there a few years ago, and made a packet from them, that the same opportunity exists today...... Particularly with new properties- the main factor governing their prices, and ultimately their desireability, is, as elsewhere, their location. Somewhere 5 minutes walk from the beach will also be in demand- but a lovely apartment a 10 minute drive from the beach could be a white elephant......

Properties in the upper end of the market are already in trouble in Portugal- as Germans in particular are trying to get out asap. The lower end of the market is being hampered by affordability issues, the prime one being most locals are not now in a position to purchase properties. This has become a political issue- and in many areas foreigners, other than Brazillians, are now public enemy number 1. If you read media reports you will find accounts of gangs of teenagers on the rampage in coastal areas (mostly around Lisbon and Setubal so far).

There are a lot of local factors in Portugal that have changed for the worse recently- you seriously need to research carefully what you are doing and what the prospects for your proposed investment are.

With respect of local workmen- have you ever tried to get a plumber, a builder, an electrician or indeed any other tradesmen in Portugal? We had to get a job completed in time for Christmas and the only way to get it done on time ultimately was by offering silly bribes to get the work done on time and even then to stand over them so they didn't wander off.

Proposing to take a small apartment for the sake of a 10k profit is not a good proposition- given the immense uncertainties that exist.

Do a lot of research into what you are proposing before taking a leap into the dark. Talk to people who already are doing what you propose and make certain you plan for all contingencies.

Shane