Welcome to Offshore Living Letter, Your #1 Resource for Offshore Diversification

Portugal Investments Offering Up Profit And Peace Of Mind

15 Apr
algarve lagos portugal coast

Portugal Investments Offering Up Profit And Peace Of Mind

I’m Thinking My Next Investment In Portugal Will Be…

Driving from Lisbon to Lagos yesterday afternoon, as I’ve done several times in the past when coming to the Algarve for our annual Live and Invest in Portugal Conference, I was struck, again, by how beautiful the countryside is in this part of this country.

Softly rolling hills covered with cork, olive, and pine trees… stone walls built by hand… herds of cattle grazing lazily… here and there a cream-colored farmhouse…

It makes one yearn for a simpler life…

And itch to buy a piece of land and begin growing things on it.

That feeling explains why, wandering around Lagos last night, I was drawn not to the many apartment listings but the one for a small farm just outside this city.

Four years ago, I bought an apartment in Lagos City Center as an investment rental property. Portuguese property markets were at their lowest point in recent history… still down following the global property crisis of 2008… but just beginning to show signs of warming up.

In hindsight, I was able to buy at precisely the right moment. This is one time when I was aware at the time just how good my timing was.

To date, the property has generated a net yield after taxes (in Portugal, the rental manager withholds 25% of gross rental income and sends it to the government for you) of between 6% and 8.5% per year of my purchase price.

At the estimated current value of the apartment, last year’s net yield was around 5%… the bottom end of my acceptable range.

That’s the downside. The upside is that the reason my rental yield is down is not because I’m earning less cash each year… but because my apartment is worth more than 50% more than I paid for it four years ago.

At today’s values, rental yields are down generally in key markets across Portugal. You still can find a rental investment that will generate a decent yield, but you have to search much harder than I did four years ago.

And you definitely should not expect values to increase another 50% over the next four years unless you add value to a property in some way.

I’ve been happy with my rental property investment and have been looking for a next buy.

Now I’m Thinking About A Small Farm…

Portugal seems like an appealing place to be a land owner… and not only because of the picturesque scenery. This country is one of the most self-sufficient in the world. It’s on my list of places to go should things go completely sideways and I decide it’s time to bug out.

Portugal’s rate of renewable energy use as a percentage of overall energy use is higher than that of any other country. In March 2018, for example, the Portuguese generated 103% of their total energy needs for the month from renewable sources.

I haven’t seen the figures for March 2019 yet (that month seems to be the sweet spot for high energy production and low energy usage), but the expectation is that within 20 years the country will eliminate greenhouse gases from their energy production altogether.

Portugal produces an abundance of food both on land and from the sea. In a global crisis, living in this country, you might not be able to get certain imported food items, but you’d have no trouble feeding yourself.

Portugal also has manufacturing capacity, meaning you wouldn’t have to make do with only handmade items.

Of course, if you have your own farm, you’d be even less reliant on the outside world.

I don’t see buying a farm in Portugal as an investment for a cash return but rather as an investment in survival… and enjoyment… and a chance to practice and improve my self-sufficiency skills.

When the world falls apart… whether that’s next week or next century, most people won’t be prepared. How do you eat when you can’t open an app and order a pizza?

The natives in the jungles of Brazil, Africa, and New Guinea will survive if the internet and global banking system disappear. For the rest of us, life will become instant chaos.

I’m not a doomsday prophet… and I’d be happy to keep ordering my groceries online and having them delivered to my door on command.

But driving through the countryside of Portugal yesterday, the urge to plant trees, to take care of an olive grove or a vineyard, and to disconnect from the internet was almost irresistible.

And in Portugal the idea is not only appealing but affordable.

That farm on offer in the window of the property agent in Lagos includes a big house and outbuildings on a dozen acres and is listed for sale for 350,000 euros. That’s cheaper than a small one-bedroom apartment in Paris.

Lief Simon