Buying an apartment to rent out: is it worth it? Advantages, risks and tips to maximise your investment

1. Why invest in an apartment to rent out?

Real estate is traditionally seen as a safe form of investment. Even in times of economic uncertainty, property tends to hold its value and generate steady income through rent.

Buying to rent is particularly appealing because:

• It generates passive monthly income.

• The property can appreciate in value over time.

• It acts as a hedge against inflation.

• It may offer tax advantages under certain regimes.

• It provides investment diversification.

Unlike many other forms of investment, real estate offers greater control since it’s a tangible, long-term asset.

2. Advantages of buying a property to rent out

The benefits of investing in a rental property are numerous and closely tied to the stability and predictability this type of asset offers.

Main advantages:

• Regular income: provides a stable source of passive income, which can supplement retirement or other earnings.

• Capital appreciation: in strategic locations, property values tend to rise over time.

• Low volatility: compared to financial markets, real estate is less prone to sudden fluctuations.

• Flexibility: owners can rent, sell or refurbish the property as part of their strategy.

• Tax incentives: in some cases, long-term rental investments can benefit from favourable tax treatment.

Real estate offers a sense of security and control that few other investment vehicles provide.

3. Risks and challenges of buy-to-let investment

Like any investment, buying an apartment to rent comes with risks and challenges that should not be overlooked.

Main risks:

• Market fluctuations: property prices can stagnate or decline, especially in areas with excess supply.

• Unexpected costs: repairs and maintenance can reduce profitability.

• Problematic tenants: late or missed payments can lead to financial losses and lengthy legal processes.

• Limited liquidity: selling a property can take months, unlike more liquid financial assets.

• Management responsibilities: rental management can be time-consuming.

These risks can be mitigated through careful planning, due diligence and support from experienced real estate consultants.

4. Location: the most decisive factor

Location is one of the biggest determinants of a property’s profitability. A well-located apartment tends to attract tenants more quickly, maintain its value over time, and secure higher rental yields.

Key factors to consider:

• Proximity to public transport and road access.

• Availability of schools, universities and essential services.

• Access to commercial, cultural and tourist areas.

• Potential for urban development and appreciation.

• Local demand and occupancy rates.

A solid market analysis can help identify areas with strong growth potential and high occupancy, maximising the return on investment.

5. Property type: what works best for rentals?

Not all types of properties perform equally in the rental market. The choice of property type should align with the target tenant profile and location.

Most sought-after property types:

• One- and two-bedroom apartments (T1/T2): typically the easiest to rent out, ideal for young professionals, couples or students.

• Three-bedroom apartments and larger: suitable for families, often resulting in more stable, long-term tenancies.

• Studios and lofts: popular in central or tourist areas.

• New or renovated apartments: usually command higher rents and lower maintenance costs.

Functional and well-designed apartments tend to have higher occupancy rates and lower tenant turnover.

6. Rental types: long-term vs. short-term

Before investing, it’s essential to define the most suitable rental model for your strategy.

Long-term rental:

• Ideal for investors seeking stability and lower tenant turnover.

• Less wear and tear on the property.

• Predictable rental income.

• Lower management costs.

Short-term rental (tourism):

• Potential for higher returns.

• Greater flexibility for personal use.

• Requires more management (cleaning, bookings, check-ins).

• Subject to specific regulations in many Portuguese cities.

The choice will depend on your investor profile, location and applicable regulations.

7. Costs associated with the investment

To accurately assess rental profitability, all costs associated with the investment should be taken into account — not just the purchase price.

Main costs:

• IMT (Property Transfer Tax).

• Stamp Duty.

• Deed and land registration.

• Renovation or furnishing costs.

• Condominium fees and insurance.

• Rental income taxes.

• Ongoing maintenance.

A clear financial overview helps determine whether the investment is viable in the long term.

8. Profitability: how to calculate and analyse it

Profitability is one of the key indicators when evaluating whether a real estate investment is worthwhile. Instead of relying on complex formulas, the most effective approach is to look at it practically: how much income comes in through rent each month and how much goes out in fixed and variable costs.

To assess whether the investment truly pays off, consider:

• Total annual rental income.

• Yearly costs such as taxes, maintenance and insurance.

• Expenses related to financing, if applicable.

• The expected time to recover the initial investment.

A healthy return is one where the net income comfortably covers all expenses and still generates profit, ensuring long-term stability and growth.

9. Financing and its impact on returns

Many investors finance their property purchase with a mortgage. In this case, it’s important to ensure the monthly instalment is well balanced with the expected rental income.

Key considerations:

• Evaluate debt service and monthly cash flow.

• Consider interest rates and loan terms.

• Use conservative projections to avoid surprises.

• Ensure repayments don’t exceed expected yields.

Good financial planning ensures the investment remains profitable and sustainable.

10. Legal and tax obligations

Being a landlord comes with legal and tax responsibilities.

Main obligations:

• Rental contracts must be registered with the tax authorities.

• Rental income must be declared.

• Compliance with habitability and safety standards.

• Payment of applicable taxes.

Support from an experienced real estate team and legal advisers can simplify these processes.

11. Property management: DIY or outsource?

A key decision for investors is whether to manage the property themselves or hire a professional.

Self-management:

• More control over the property.

• Lower management costs.

• Requires time and availability.

Professional management:

• Less direct involvement.

• Professional experience and structure to handle issues.

• Additional costs, offset by greater efficiency and peace of mind.

Many owners opt for professional management, especially in short-term rental markets.

12. Strategies to increase profitability

There are several ways to boost the profitability of a rental investment:

• Renovating or modernising the property to increase rental value.

• Offering modern furniture and equipment.

• Choosing a neutral, appealing interior design.

• Ensuring energy efficiency and low maintenance costs.

• Actively managing rentals to reduce vacancy periods.

• Carefully selecting reliable tenants.

Small improvements can significantly increase overall returns.

13. The outlook for Portugal’s rental market

Portugal’s rental market has grown considerably in recent years, driven by:

• Tourism growth.

• Academic and professional mobility.

• The difficulty many young people face in buying homes.

• The attraction of international investors.

Lisbon, Porto and the Algarve continue to see strong demand, but mid-sized cities and suburban areas are also emerging as attractive investment opportunities, offering lower entry costs and competitive rents.

14. Ideal investor profile for buy-to-let

Buying an apartment to rent can be a suitable strategy for:

• Investors with a long-term outlook.

• Those seeking stable, predictable income.

• People looking to protect capital through tangible assets.

• Individuals willing to manage or delegate property management.

• Investors aware of legal and tax requirements.

With proper planning, this investment model can be an excellent way to build wealth and secure steady income.

15. The role of real estate experts

Making informed decisions is key to achieving strong investment results. Relying on experienced professionals with in-depth knowledge of the local market, legal framework and market trends can save time, money and stress.

Engel & Völkers supports investors throughout the entire process:

• Identifying the best opportunities.

• Analysing profitability and building a strategy.

• Negotiation and acquisition support.

• Post-purchase support and rental management.

A solid professional partnership can turn a standard investment into a high-performing one.

FAQ — Buying an apartment to rent out

Is buying to rent a safe investment?

Yes — if done with proper planning and market analysis. Real estate tends to be more stable than other investment options.

What location should I choose?

Areas with good transport links, services and high demand are ideal to maximise occupancy rates and rental yield.

What is net rental yield?

It’s the real return on investment after deducting taxes, maintenance and operating costs.

Can I finance the purchase?

Yes. Many investors use mortgages, but it’s essential to ensure rental income covers monthly expenses.

What are the main risks?

Market depreciation, unexpected costs, problematic tenants and low liquidity are key risks that need to be managed carefully.

Should I manage the property myself or hire a company?

It depends on your profile. Self-management gives you more control, while professional management offers convenience and peace of mind.

Buying an apartment to rent out can be a solid and profitable long-term investment. However, it requires careful planning, market knowledge and a clear strategy. Working with an experienced real estate team can be the key to turning an average investment into a successful business.

If you’re considering investing, count on Engel & Völkers to help you find the best opportunities and maximise your property’s potential.