Buy-to-Let in Portugal: The Best Investment Spots

Buying a property in Portugal to rent out has yielded strong returns for investors in the past and remains a solid investment option. Rental prices in the country continue to rise against a backdrop of sustained high demand, which continues to outpace housing supply.

The gross return on buying property in Portugal to rent out reached 7.2 percent in the third quarter of 2024, and while this is a slight dip when compared with the same period last year (7.4 percent), it remains considerably higher than the figure from three years ago (5.7 percent). This is according to a recent study by Idealista.

Current State of the Portuguese Rental Market

In the first half of 2024, the number of rental contracts in the country has grown, highlighting that the rental market in Portugal continues to gain momentum with increased demand. The imbalance between supply and demand has driven up the renal prices further, with this trend helping to explain the non-linear growth in gross rental yields over the past four years. It should also be noted, however, that the business risks have also increased.

After the gross rental yields increased at a consistent pace between the summer of 2021 and the summer of 2023, a slight dip has been shown from summer 2023 to the same period in 2024, with yields dropping from 7.6 percent to 7.4 percent. However, even with this marginal decrease, the Portuguese real estate market remains a very attractive investment option for investors.

Rental Yields from Buying a House to Rent It Out

When analyzing 13 district capitals in Portugal, Santarém, which is located just over an hour to the northeast of Lisbon, stands out as the city with the highest profitability for buying a home in Portugal as an investment property. The gross return on investment in Santarém is around 8 percent. It is worth bearing in mind that the investment risks here are also higher than in other locations, where there may be greater difficulty in achieving long-term capital appreciation or face trouble renting out the property.

Other locations where it is profitable to invest in a home and then place it on the rental market include:

• Coimbra: 6.9 percent
• Leiria: 6.3 percent
• Setúbal: 5.9 percent
• Braga: 5.8 percent
• Porto: 5.7percent
• Viseu: 5.3 percent
• Aveiro: 5.3 percent
• Faro: 5.1 percent

Lisbon stands at 4.7 percent, while Funchal, the capital of Madeira, stands at 4.9 percent. In these cities, investment risks tend to be lower, with a lower likelihood of the property not being rented out.

When investing in a property in Portugal to rent it out, it is worth bearing in mind other expenses, including property taxes and taxes on rental income.

The study by Idealista also highlighted the profitability of other real estate types in Portugal on a national level. Offices provide profitability of 9.3 percent and stores of 8.4 percent in the third quarter of 2024.