Second House - How to Turn Your House into an Investment Property?

Is a holiday home or second home something you aspire to own in your life? A second home is a goal that many people want to achieve, especially in a tourist area. When you buy a second home, you can use it for different purposes, such as renting it out to others or securing a place for your holiday. Before embarking on this adventure, you should do extensive research on buying a second home and learn about the possibilities of an investment property.

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Investing in a second home can be an excellent opportunity to have an investment property to rent out or spend your holiday.

Why buy a second home?

The pandemic has accelerated buyers' decision to purchase a second home due to the liquidity of Portuguese banks in the mortgage and the search for a bigger space in a location far from the major urban centres. An alternative home to enjoy quiet days in lockdown, for remote working or just take a few days of family holidays have been the reasons for the increase in demand in Portugal.

All the country regions are attractive when we talk about buying a second home, but it is the sea that investors seek the most. Foreign investors, Portuguese and Portuguese living abroad have made their second home their first, and many have decided to sell their old home and invest in a new, larger second home. The main factors that attract investors to look for a home in the Algarve are its tranquillity, proximity to nature, quality of life in general and low population density. The fact that the number of people affected by the pandemic in the Algarve is low has also attracted buyers' interest in the region.

This dynamic of buying a second home in the Algarve is not a new notion that has only developed in the wake of the pandemic. Long before that, as far back as the 1970s, many Portuguese and foreign families had their second homes in the Algarve. These houses are now passed down from generation to generation, contributing to family holidays and a monthly or occasional income.

• Find your second home by the sea here.

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Investment property opportunities when buying a second home.

Property investment has always been one of the most successful investments, and if you choose Portugal, it is a winning bet. If you are betting on buying a second home, do you know how to profit from this investment? We will give you some tips on this subject.

• Rent out your second home for the long term:

By renting out your second home, you can create a substantial source of income for yourself. First, check the rental rates of properties in your area. You might compare the rents of similar houses, that is, with the same rooms, the same state of preservation and whether they are furnished and equipped. Always consider the monthly rental value without falling into the mistake of asking for higher or lower values than are common in the area where you live.

Do you know the costs to consider when calculating a reasonable rent for you and your tenant? There are some mandatory costs involved in buying a home to pay monthly or annually. These must be included in the rent if you want to profit from renting out your second home. The costs to consider are:

1. Municipal Property Tax (IMI - Imposto Municipal sobre Imóveis) - You must pay this tax annually, and its amount varies from one municipality to another. You can be exempt from paying this tax for three years or permanently. It all depends on the income of the family and the taxable value of the property.

2. Rent Tax - The standard rate of 28% rent tax is on the amount of rent you receive. It can be reduced in some ways. One is if the initial lease with the tenant is longer than two years. The longer the length of time specified in the lease, the lower the percentage of the rent tax.

3. Condominium fees - all condominium members are required to pay an amount related to their property. Payment can be monthly, quarterly or even annually to cover common area costs. If your second home is an independent dwelling, i.e., not in a gated community or similar, these charges will not apply in your case.

4. Multi-risk insurance - this is compulsory in Portugal. The coverage that must be included in the insurance is fire. You can also add coverage for theft, third party liability or damage caused by extreme weather phenomena to your base insurance.

5. Travel expenses - this is not an expense you can include in your tenant's rent, but you should consider it if your first home is far from your second. There will always be upcoming matters that need to be taken care of, such as maintenance, condo association meetings, or other important tasks around the house. One way to save on travel expenses is to hire a condominium management service. Casas do Barlavento offers this service, with a focus on non-resident housing. Learn more about our condominium management service.

• Holiday home:

Savings - Most people who buy a second home purchase the property to spend their holiday in that location. For this reason, it is significant to find a property in the best area and according to your taste. The question you must be asking yourself now is: how can I make a return on my investment by buying a holiday property? The answer is simple: if you buy a holiday home in a place you like, you will save a lot of money on hotel stays. If you always avoid travelling during peak season because of hotel prices, this is a great way to plan your holiday during the most desirable time of year to relax, summer!

Alternate between primary and secondary residences - that way, you'll always have your home available for any situation, even if you only want to enjoy a short holiday. Due to recent pandemic events, many families have made their second homes their first homes during the lockdown. The workplace changes and the growing trend towards remote working have accelerated this move, which in some cases has become a permanent decision. In the Algarve, this trend has been particularly pronounced due to its mild climate and proximity to beaches or other natural areas.

Photo by Toe Heftiba – Unsplash

• Offering the second home for short-term rental:

Unlike long-term rentals where the home is occupied year-round, this type of rental allows the owner to choose when to rent out their second home. This is an excellent option for those who want to make their home profitable while enjoying the property during their holidays. In Portugal, this type of rental is known as Local Lodging (AL - Alojamento Local), which gained notoriety after the 2008 financial crisis.

Do you know what is required to list your second home in Local Lodging?

1. Finding your dream home — The first step is to find the ideal property in a tourist area. The perfect region for Local Lodging is the Algarve, where thousands of tourists plan their holidays throughout the year. To find your home safely and quickly, contact a real estate agent in the area you want. You will get the assistance of real estate professionals in completing all the paperwork and getting insider information on the best location to buy a holiday home/local lodging. The Western Algarve is an excellent choice as it has the best beaches, numerous activities and natural areas that offer residents plenty of privacy. For more information on available housing in this region of the Algarve, contact Casas do Barlavento.

2. Local Lodging Registration and Other Bureaucracy - Local lodging registration is done online and only results in prior notification to the municipality where the property is located. This first step is free of charge. The second step is to register with the SEF. This registration is also done online and is free of charge. The third and final step is to open activity at the tax office. Find out about all the necessary documents and details to open your local lodging here.

3. Local Lodging Requirements - There are some requirements that must be met in order for a local lodging to open and comply with regulations. These requirements are designed to ensure the safety, sanitation, and comfort of future guests. All you need is to follow these steps:

• Present the best conditions in terms of infrastructure and operation of the appliances present in the property.
• The kitchen and bathroom must have hot and cold water.
• At least one window or balcony must be connected to the outside.
• You must provide basic utensils, appliances and furniture.
• Ensure the safety of guests with security systems. A simple example would be putting security chains on the front door.
• The local lodging should provide a fire extinguisher, fire blanket and first aid kit in a visible location.
• The emergency telephone number should be visible. In Portugal, the number for emergencies is 112.
• Make sure that the entire room is disinfected and cleaned before each guest enters.

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• Do you need a management service for your local accommodation?

  Casas do Barlavento takes care of guests' entries and exits, the property maintenance, the payment of bills, and also informs the owner of any steps taken by email or telephone.

As you can tell, a second home can serve a variety of purposes aside from the most obvious, which is the pleasure of spending the holidays with your family. It is also a way to make your property more profitable, from which you can make a profit or reduce your repayments to the bank. When buying a second home, you should always be aware and make a well-planned budget before investing in a house. Start your second home investment with the professional help of Casas do Barlavento.