What Portugal’s Algarve Offers Real Estate Investors

It’s that time of year where it’s almost time for me to pack my bags and leave my base here in Cabo, Mexico and head back to Europe for the summer. Each year I do this, to reconnect with my team based in Europe, see family…and to get boots on the ground in countries around Europe for new opportunities. 

This year I’ll be starting my Europe trip in Portugal. I did an extensive scouting trip of Portugal last summer and focused in particular on the southern region of the Algarve. 

So I’d like to share with you my take on what the Algarve has to offer real estate investors…

Opportunities on Portugal’s Algarve

I’ve been visiting the Algarve since 2002 and bringing deals to members of my Real Estate Trend Alert group almost since I founded our group in 2008. Our contacts and insider intelligence goes deep here.

With 300 days of sunshine a year, stunning beaches, and world-class golf, Portugal’s Algarve attracts millions of tourists each year.

The Algarve is in the south of the country facing the Atlantic, yet it boasts a perfect Mediterranean climate. It’s a place of rich culture, great food…soaring cliffs, white-washed villages, secret coves…

Two Paths of Progress stretched out from the central Algarve to the west and Lagos, and the east around Tavira.

In the west, the town of Lagos is arguably the most historic town on the Algarve.

This small town was home to Henry the Navigator and the adventurers of the Age of Discovery. It’s a pretty and happening place, compact, low-rise, and walkable. From spots all over town you can catch breathtaking views of the Bay of Light, fringed by miles of golden sand, with the town of Portim?o on the other side.

I think of Lagos as a beach town with a modern marina and great restaurants. You can walk from town to sandy coves, or long stretches of golden sand beach. Cliffs, sea stacks, and bluffs punctuate the coastline.

It’s easy to see why the coastline and climate remind folks of Southern California

The marina in Lagos

Lagos' pretty old town 

Lagos has got a chronic shortage of hotel rooms. Deals here are getting snapped up as fast as I find them. RETA members have not been slow to act. I know of several who have bought properties here.

Some members of my RETA group have already bought luxury condos in Adega, right in the heart of Lagos. A short stroll to the beaches, nightlife, and everything the old town offers, these condos are ideal rentals, or to live. Many of these condos are 1,300 square feet or more, plus spacious terraces. That’s what you’ll find in Lagos…high quality construction and big livable condos. 

Nothing about this place is cookie cutter. The developer’s track record is superb. His is a local family who’ve been developing in Lagos for generations. When I was there the finishing touches were being put to the ground-floor units. Tiling was done, windows not yet. There’s a rooftop pool and finishes are state-of-the-art.

Prices start from €345,000. I figure on 8% to 10% gross rental yield here. (With mortgage rates from 1% to 1.5% you can be cash-flow positive and still get plenty of use in the spring and fall. Lagos attracts people year round. It’s very popular with Scandinavians who escape their hard winters to play golf and relax on the beach…even in January when the weather in the Algarve is at its coolest. (Still beats the dark and cold of northern Europe.) You’ll meet Americans, Canadians, English, Germans...folks from all over.

The same developer is behind another luxury community close to Adega called the Residences. It’s going to be a landmark community. Penthouses will offer a panoramic sweep of the old town, marina, and beach. Those will come with a sticker price of €1 million, give or take. 

Lagos is the only place on the Algarve where I have recommended pre-construction. But all across the Algarve—including in Lagos—my “overlooked and unloved” strategy can pay off in a big way…

Overlooked and Unloved

“Overlooked and unloved” is one of my all-time favorite plays. You find a property that’s undervalued…a half-finished villa…a large abandoned lot…and you get it for a steal. Then you clean it up, finish the building off, or subdivide the lot…and sell on for a big profit.

The Algarve attracts many busy, wealthy people. They aren’t interested in doing the boots on the ground scouting nor the work of getting permits. They don’t want to spend time figuring things out. They are perfectly happy to pay €1.5 million to own something turnkey…something you could be all in for say €750,000.

For instance, in Porto do Mos in Lagos, I checked out a half-built shell property on a large double lot. The owner fell out with his architect and he’s selling. You could own this for less than the price of the raw land. Asking price is €450,000. I reckon you could finish it off for another €300,000.

Then sell it for €1.5 or €1.6 million.

So you are into it for €750,000 and you can do extremely well from rentals while waiting for the right buyer. I reckon €120,000 a year. Repeat the strategy from the bank repos of adding value by finishing, then add value by showing rental track record.

The “overlooked and unloved” strategy can be highly successful in the central part of the Algarve too.

The central region around the marina of Vilamoura is the Algarve’s “Golden Triangle.” It was the first part of the Algarve to develop, starting in the 1960s. Today you’ll find 5-star hotels, multi-million-dollar yachts, and luxury resorts.

Figure on paying €500,000 to €800,000 for an entry-level home in the Golden Triangle. At this price you might be talking about a relatively modest home on a lot of one quarter to a fifth of an acre. Bigger homes on bigger lots generally list from €1.5 million and up.

Back in May 2019, I brought the “orange grove” deal to RETA members…a secret worth potentially millions.

Just seven minutes from Vilamoura, you leave the main road and curve around some hidden side roads. Then up a short dirt track through farmland to a rusty set of gates. The gates opened into a verdant oasis of orange trees heavy with fruit.

There you find a shell of a villa, about 4,000 square feet in an L-shape around a pool with views out to the ocean. It’s on around 5 acres.

The owner got started during the boom but ran out of money.

The location of this villa and the size of the plot is so rare it might be unique.

It's just a few minutes from the Algarve's most prestigious 5-star resorts at the heart of the Golden Triangle. Yet it's completely private, surrounded by rural bliss, birdsong, and as many oranges as you can eat.

As I told my RETA members at the time, I would have bought it, but the timing just wasn’t right for me. I had other big things on my plate, like getting married, and didn’t have the capacity to take this on. (Understanding what you can and can’t give your time and energy to is part of profiling yourself.)

Turns out one of my RETA members also saw the opportunity and has gone to contract at €850,000. Here’s the thing…during his due diligence he found one of the most outrageous kickers I’ve come across. He figured out how to get permits to carve four lots on the edge of the property. Sold raw, I reckon he could get around €250,000 for each. If he were to design homes here and get final construction licences, perhaps €400,000 for each lot.

The Eastern Algarve

Development had been moving in two directions from the central Algarve. We’ve looked west…but there have also been opportunities to the east.

Amid the banking meltdown of 2008, the eastern Path of Progress ground to a halt around the historic town of Tavira. Around Tavira you'll find wide-open Atlantic beaches and lots of protected land. The town's historic core is preserved, so pre-crisis development had started in neighboring towns like Cabanas and Santa Luiza.

Then the crisis stopped everything…

Historic Tavira is one of the prettiest towns on the entire Algarve…

 In 2015 there were some deals in failed new projects. In 2018 RETA members had an opportunity to buy luxury condos in a converted 16th-century convent for as little as €21,000, which I figure will appreciate in value and you can rent out for as much as $5,400 a month in high season. A rental manager I know has one property under management here and rented for 21 weeks in 2019. That’s strong considering Tavira is still in its early days of tourism growth.

Close to Tavira is the beach town of Cabanas. Along the eastern Algarve it’s in Cabanas and Tavira where I see the prospect for biggest tourism growth and appreciation.

When I visited Cabanas two years ago, I visited a boarded-up project. The developer had gone bankrupt in the crisis. Despite being a short walk to the water these condos sat empty, but were structurally well maintained for close on a decade. Then a deal was done with the banks, the condos repainted and refreshed, and offered for sale. They were selling for at least €25,000 less than I reckon they were worth. The condos came at an entry price of €140,000. The numbers started to look very strong with the miracle of leverage—that is Portuguese bank financing. Borrow 80% and you’d be into the deal for €28,000 plus buying costs.

I visited the project on my most recent trip last summer and was again reminded about how close the location of town is. These were the best value buy I’ve found on the Algarve. 

The incredible beaches of the Eastern Algarve are mostly on sandbars just offshore. You get there using water taxis.

 I found another opportunity on that trip last year where start prices are €210,000 for a two-bed condo. What’s compelling here is that the holding costs are so low and potential rental returns handsome.

Say you get a Portuguese mortgage at 80% I figure you’re outgoings including taxes and HOAs wouldn’t be more than €800 a month.

I figure on rental yields here of around 8%. This area appeals to a broad cross section of tourists (including families), with tourism coming from across Europe, with Scandinavians, French, Swiss, German, and others, along with the British and Irish. Cabanas will get the shoulder season traffic…golfers, retirees, and other renters throughout the year.