This week I met Danny, a successful 45-year-old Israeli entrepreneur, who came to the office with a thick folder of documents and a laptop full of wonderfully organized Excel files. “Ilan,” he told me proudly, “I know Portugal better than most Portuguese themselves.”
And he wasn't exaggerating. For 45 minutes he gave me an impressive presentation: he knew that the tax on buying real estate in Portugal ranges from 5% to 7.5%, what the registration costs are at the Portuguese land registry, that Lisbon's Príncipe Real district is the city's new “SoHo,” and that Porto offers higher rental yields than Lisbon.
He had prepared comparison tables between different cities, checked property prices in every single neighborhood, and studied Portuguese real estate tax law in depth. He had even learned basic Portuguese using an app.
“So what's the question?” I asked him.
And then, suddenly, his confidence evaporated. “To be honest? I don't know exactly why I want to buy an apartment there.”
This is where quite a few of my clients get stuck. They spent many hours learning about the destination, the laws and regulations, but missed the most basic question: what is their purpose in making this purchase?
Danny told me that he had heard about friends who bought real estate in Portugal, read about Israelis' successes there, and thought it sounded like a smart investment. “But,” he admitted, “I don't know whether I want it as a rental investment, a vacation home for myself, insurance for the future, or a way to get a European passport.”
It's like buying a car without knowing whether you need a small city car or a family SUV. Each goal leads to a completely different purchasing strategy.
If the goal is a financial investment, the focus should be on areas with high rental potential and expected appreciation in the property's value. If it's a vacation home, what matters is the location relative to beaches and attractions, and if the goal is a European passport, the criteria are completely different.
“Why is this so important?” Danny asked.
I explained to him that without clarity of purpose, he might choose a property that wouldn't serve him properly. For example, an apartment in the heart of Lisbon is excellent for short-term tourist rentals, but if he wants a quiet vacation home for the family, it's not the right place. Or he might invest more than necessary if the goal is only a golden visa. In addition, Portugal may not be the right country for him at all. After all, if his goal is yield, a higher yield might be achievable in another country. I told him about a recent study which found that yields in Eastern European countries are higher than in the countries Israelis flock to for buying property, such as Portugal, Greece and Cyprus.
By the end of the meeting, Danny realized he needed to take a step back. “I think my goal is actually a combination,” he said. “I want a property that can serve as a vacation home from time to time, but also as an investment that yields a return when I'm not there.”
Now we have a real starting point. With a clear goal, all of his impressive knowledge about Portugal can be focused in the right direction.
Danny's story reminds me how important it is to start from the end. Before examining data on taxation and regulations, you need to know exactly what you want to achieve from the purchase. Otherwise, even the best information will not lead to the right decisions.
So before you dive into the depths of Portuguese or Spanish regulation, ask yourselves: what exactly do I want to achieve from this purchase? The answer to that question will save you a great deal of time and lead to a smarter purchase.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית