How to buy a holiday home in Portugal as an investment

Why invest in a holiday home?

Portugal sees high tourist demand throughout the year, especially in areas like the Algarve, Madeira and the Costa Vicentina. Owning a holiday home allows you to use the property during specific periods and rent it out during the rest of the year via platforms like Airbnb or Booking.

Well-located properties tend to increase in value over time, especially in regions with high demand and limited supply Engel & Völkers offers tailored support to help you make informed investment decisions based on these trends.

Choosing the right location

Location is one of the most crucial factors in real estate investment success. Established or up-and-coming tourist areas tend to guarantee high occupancy rates throughout the year. Cities and regions such as Lagos, Albufeira, Sesimbra, Comporta and even rural areas like the Douro Valley are in high demand among both local and international travellers.

In addition to tourism potential, consider local infrastructure, transport links, safety, and amenities. Proximity to the beach, urban centres or attractions can significantly increase your rental value.

Most sought-after property types

Some of the most popular property types for holiday investments include:

• One- or two-bedroom apartments in secure condominiums with a pool

• Villas with outdoor areas and private pools

• Traditional houses in historical or rural settings

• Renovated homes with modern features and aesthetic appeal

What matters most is that the property is visually appealing, functional, well-furnished, and offers high standards of comfort and cleanliness – qualities highly appreciated by holidaymakers.

Budgeting and financing

Before committing, it’s important to carry out a full financial assessment. This includes not only the purchase price, but also additional expenses such as notary fees, taxes, property deed costs, maintenance, insurance, furniture and potential renovations.

If financing is needed, banks in Portugal offer specific solutions for second homes, although down payments are usually higher than for a primary residence. Be sure to compare options from different banks to secure favourable rates.

Legal and tax considerations

Buying a holiday home comes with legal and tax responsibilities. These include:

• Property transfer tax, depending on the price and property type

• Stamp duty

• Annual municipal property tax

• Income tax on rental earnings

A valid land registry certificate should be reviewed to ensure the property is free of mortgages or legal issues.

Monetising the property through short-term rental

Once purchased, the property can be registered as Local Accommodation, which allows legal short-term rental. This involves meeting certain legal requirements, such as fire safety measures, signage and a complaints book.

Online platforms make it easy to rent out your home flexibly and often offer higher occupancy and profitability than long-term rental.

Self-management or professional service?

Another key decision is whether to manage the property yourself or hire a property management company. The latter is ideal for owners who don’t live nearby or lack the time for bookings, maintenance and cleaning. These companies usually charge a percentage of the income and handle everything for you.

Tax benefits for foreign investors

Portugal offers a special tax regime for non-habitual residents, which can result in tax reductions or exemptions for the first ten years of fiscal residence in the country. This can be particularly advantageous for foreigners investing in the local market.

How Engel & Völkers can help

If you’re considering purchasing a holiday home in Portugal, the experienced real estate team at Engel & Völkers is ready to assist you through every step of the process — from selecting the right property to legal and tax guidance, and even preparing it for holiday rentals.

With access to our market analysis report, you’ll gain valuable insights into promising investment locations, buyer profiles and rental market trends.

More than just a financial investment

Owning a holiday home in Portugal also means investing in lifestyle quality. The weather, safety, cuisine and warm hospitality make Portugal one of the most attractive destinations for both living and leisure. Plus, the ability to use the property yourself during the year adds emotional and practical value to your investment.

Think long-term

Real estate should always be seen as a medium- to long-term investment. While capital appreciation may not happen immediately, choosing the right location and ensuring proper management can lead to consistent income year after year. In the future, a well-maintained property in a desirable location could also provide a significant resale profit.

Final thoughts: A smart investment with the right support

Buying a holiday home in Portugal can be the start of a rewarding and profitable journey. With Engel & Völkers as your trusted partner, you gain access to a global network, deep market knowledge, and a dedicated team that understands your goals and helps you achieve them.