Leaseback in Portugal - Vilabranca

C

carr

Guest
Hi

My first time posting and would appreciate any advice. I've placed a deposit on a 2 bed apt in a scheme called Vilabrance in Lagos, Portugal. It comes with a 3 year guaranteed rental of €17,500 per year, with personal usage from Nov-March. The dev is about 7 years old but is refurbished and is prebooked by Thompson Holidays for the summer seasons. Mgmt & maintenance fees come to €8400 and with taxes etc. I estimate that it will cost me €100 a month. I'm releasing equity for 25% of the loan & getting a 75% int only mortgage in Portugal. I hope to keep it for at least 5 years and use it during off-peak for holidays. Any thoughts on whether this seems a good prospect or not?
 
General feeling on gauranteed rent is not good-the gaurantee is priced into the property so you are recieving your own money back in rent. 8400 seems very high for management charges. If as you say it will cost you 100 pm you are really banking on capital apreciation to make it worth while. One of the key determinants in property appreciation is the lack of development land-From two visits to Portugal this year there appears no shortage of such land-which will affect appreciation in the future. If its time in the sun that you want-you will get at least two weeks off season accomadation in Portugal for 1200 or less-with no risk to your capital.
 
Hi again

The apt will cost €215,000. I've visited Lagos and though it had a lot going for it, capital app would be vital if going ahead with it, mgmt fee is €7000 & maintenance fee is €1600 P.A. but the guaranteed rent of €17500 seems quite high for 7 months rental. I'd also hope to rent it out myself over the offpeak season.
 
Nothing to do with the financial side of things but we stayed in Villa Branca a couple of years ago and the apartments were fantastic, very very spacious, there were alot of bush fires there that year and they got really close to the place on our last few days, the last day the pool ended up being covered in Ash because the fires were so close, it had to be closed and thoroughly cleaned, I would make sure the place was well insured just incase they got any closer........just something to be aware of, other than that I thought they were great.
 
they are in a very good location. near both praia de mos and dona anna beaches. first visited lagos in 1995 and I am almost certain villa branca were there then ( stayed nearby in torraltina)
 
What happens when 3 years leaseback is up? Do you have an option to sign a new lease or are you on your own?
 
As far as I'm aware the lease can be renewed after the 3 years but am in the process of checking this out. Its good to hear from someone who has stayed there and would recommend it as a place to stay.
 
Luternau said:
8400 seems very high for management charges. If as you say it will cost you 100 pm you are really banking on capital apreciation to make it worth while. One of the key determinants in property appreciation is the lack of development land-From two visits to Portugal this year there appears no shortage of such land-which will affect appreciation in the future. If its time in the sun that you want-you will get at least two weeks off season accomadation in Portugal for 1200 or less-with no risk to your capital.
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On paper this looks to me like giving 17,500 and getting back 7,000 so net give is 10,500.

Agree with Luternau that there is no shortage of land available for building and this will continue at a brisk rate.

Good luck with it, portugese are a nice people.
 
liteweight said:
What happens when 3 years leaseback is up? Do you have an option to sign a new lease or are you on your own?
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Firstly, Lagos is a good location, a lot going for it.

WRT leasebacks, I am not aware of this particular one, so I can't comment specifically on it. In general though, assuming that it is a genuine one and not a case of getting your own money back, you need to be aware of one key issue. In the case where a genuine agreement exists with a holiday company, you will do ok for the first three years. At that point however it is likely that the developer will be able to offer brand new apartments to the holiday company, much more attractive to their customers than the (at that stage, somewhat tatty) ones you are investing in now. You are therefore relying for future revenues on a growth in package holiday business to that area in line with the growth in development capacity. In the absence of that growth, you will have an empty apartment with possibly heavy fixed charges attached. You would need to assess this growth potential in the light of your own assessment of the Lagos area.

In other words, the apartment must be on sale now at market rates, with no premium for the leaseback element, in order to make this a good investment in the medium to long term. In addition, community or management charges must be reasonable and at a level that you would be happy to carry in the absence of rental clients.
 
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I visited these apartments having spoken to the current selling agent. I'd agree with the previous post in terms of cleanliness and location. They are very spacious also. What made me hesitate was the high management fee. This, I feel, has been factored into the price. For example - they are asking up to 220 for a two bed, yet a quick search on the net reveals a similar apartment, in the same complex with the asking price of 199k.

In addition there are plans to build new apartments and townhouses in the land adjoining the complex. As has already been pointed out, when the contract with Thompson is up for renewal, they are likely to express a preference for these newly built apartments as opposed to the current ones which are already several years old.

Overally you are banking on capital appreciation because the rental income is wiped out completely by the management fee. With interest rates on the rise you are going to have to supplement the monthly shortfall by more and more. As a holiday home its a great apartment in a nice area so it gets the thumbs up from me. As an investment though, I'm not so sure.
 
Thanks for all your replies. I was informed by the selling agent last week that they are pulling out of selling the apts as inconsistencies had come to light regarding the existing rental income figures from the complex owner. They could not stand over the guaranteed rental figures as a result. So, back to the drawing board!
 
carr said:
Mgmt & maintenance fees come to €8400 and with taxes etc.
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Are you sure that this includes all local taxes? When I was last in Portugal I read an article in the local English language paper about the taxes that applied to foreign investors and it all sounded pretty complicated and the taxes seemed significant. Do you fully understand the tax implications in both Portugal and Ireland?
 
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