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Property in Portugal a greater investment than in the UK

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,” he said.

“When purchasing in Portugal, you don’t have to specify the

purpose of the purchase. Mortgage

options are straightforward 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, Interest only monthly instalments – €570

Option 2: 70% Finance, 2% interest rate, 30 year term

Repayment monthly instalments – €589.91, Interest only monthly instalments – €266

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 three or six months – €650 per month =€1950/ €3900.

Total Rental Income Potential – €15,420

Net profit per year

Option 1: (Repayment) Total running costs = €14,532, Profit – €888.00. (Interest only) Total running costs = €9,840, Profit – €5,580

Option 2: (Repayment) Total running costs = €10,078.92, Profit – €5,341.80. (Interest only) Total running costs = €6,192, Profit – €9,228.00.

“These options illustrate the main difference in how a lot of buyers perceive property investment,” said Stephen Anderson. “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 increases in value each year, the investment return is very high.”

He added: “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.”

Stephen Anderson can be contacted on +351 289 313 325.
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