Vacation Homes in Portugal: An Investment Guide for Expats

Over the past few years, Portugal has become one of Europe’s most popular destinations for investors and expats looking to purchase property and relocate to the stunning Iberian Peninsula. Growing numbers of foreign buyers and expats are also looking to purchase vacation homes in Portugal.

The main reason for the increasing interest from investors that has contributed to the dynamic real estate market in the country is Portugal’s cost-effective investments, stunning locations and sublime climate.

For instance, the popular Algarve region offers relatively low real estate prices compared to European cities. This not only enhances the investment potential for vacation homes but also provides an opportunity to acquire these desirable assets at a reasonable cost.

In this investment guide, we will explore popular vacation destinations in Portugal, the types of accommodation options available, and share tips to consider before buying a vacation home in Portuga.

Why invest in vacation homes in Portugal?

With year round sunshine and stunning beaches across most of the country, it’s no wonder that people have been investing in Portugal vacation homes. The price per square meter for real estate across most of Portugal is relatively low, and the rental yields one can achieve on a vacation home in popular tourist areas are very high. So, for those looking to rent out the vacation property while they aren’t there, the potential for profit is promising.

On a more personal level, for many people, buying a vacation home in Portugal trumps many other places in Europe because of certain sociocultural factors. With the high level of English language, widely spoken across the whole country, many foreigners and holidaymakers feel welcome. The easygoing vibe and nature of Portuguese people offer a welcoming atmosphere to visitors and expats alike.

From a growth perspective, the capital gains that can be achieved through buying and selling property in Portugal in a number of years can be huge. The trajectory of growth in Portuguese real estate has been a steady upward slope that shows little signs of slowing down.

Portugal’s average house prices

Considering Portugal features popular vacation destinations like Lisbon or the Algarve and quieter areas like the Alentejo region offering visitors vacation homes surrounded by traditional Portuguese experiences, it is easy to understand that Portugal’s average price for property varies significantly across regions.

In Portugal’s capital city of Lisbon, the average asking price for property was €6,009 per square meter in 2023, while in the surrounding Lisbon Metropolitan Area, prices were more affordable at €4,061. The allure of Lisbon for investors is evident, and the city attracts many visitors in search of a vacation rental throughout the year.

In Southern Portugal, the sunny Algarve offers its own appeal with a range of house rentals and investment options throughout the region. In the Algarve’s Portimão district, the average asking price is €3,119 per square meter, while in the Faro district, which is the capital of the Algarve, it’s slightly higher at €3,519, and in Lagos on the Algarve’s West Coast property prices rise further to €4,476. Meanwhile, Porto, Portugal’s second-largest city, presents an attractive alternative, with average prices of €4,296 per square meter within the city limits and €3,291 in the broader Porto Metropolitan Area.

According to the Confidencial Imobiliário, the Portuguese real estate market has shown resilience and growth, with a 2.5 percent increase in quarterly sales since the second quarter of 2023, supported by Portugal’s thriving tourism sector. As such, property prices in key Portuguese cities have steadily appreciated over the years, making Portugal an enticing destination for investing in Portugal real estate.

Rental yields in Portugal

Portugal’s affordable real estate prices and growing tourism sector have created an enticing landscape for property investment. In 2023, Lisbon’s average rental yield grew to 5.2 percent (6.7 in the Lisbon Metropolitan Area), while Porto and the Algarve saw yields of 5.6 percent each (6.0 percent in the Porto Metropolitan Area).

The growing tourism sector fueled the growth of short-term rentals, elevating real estate returns across the country. Visitor demographics, peak visitor seasons, and the country’s cultural and historic attractions also increase the demand for Portugal vacation rentals.

As an investor, we recommend that you acquire the expertise of property management companies that can manage your vacation rentals in Portugal and your property’s rental availability information. Local property experts can also help you explore and navigate touristic trends, property prices, as well as demand and supply dynamics in the country.

An Overview of Vacation Rentals in Portugal for Foreign Investors

Investing in short-term vacation rentals in Portugal offers both benefits and challenges for foreign investors. One of the primary advantages is the potential for higher rental yields, especially with the surge in popularity of platforms like Airbnb.

Additionally, numerous property management firms in Portugal can handle the day-to-day operations of the rental property, easing the burden on owners. Moreover, short-term rentals allow owners the flexibility to utilize the property for personal use whenever desired.

However, these benefits come with downsides. Managing short-term rentals requires more active involvement from owners, and finding a reliable property management company is crucial. Furthermore, recent legislation, such as the More Housing (Mais Habitação) law passed in October 2023, has imposed additional restrictions on short-term rentals, particularly in areas like Lisbon and Porto.

Under the new laws, AL licenses must prominently display registration numbers, and existing licenses need to be renewed every five years. Plus, the number of AL units permitted in multi-unit buildings is now limited. You can discover more in our short term rentals in Portugal article.

Despite these challenges, there are still opportunities for investors, particularly in interior regions like the northern and central parts of Portugal, as well as the Alentejo area. These areas remain open for new AL licenses and present promising prospects for those seeking to capitalize on short-term rental demand. Additionally, the autonomous regions of Madeira and the Azores continue to welcome new AL licenses, boasting high tourism numbers and strong potential for return on investment.

Where to buy Portugal vacation homes for sale?

When you start searching for Portugal vacation homes for sale, there are numerous options you will be bombarded with in a Google search. It’s a good idea to research destinations in Portugal that you’re drawn to first and narrow down the top three places you want to buy property in. We would advise working alongside a buyer’s agent to find your dream vacation home in Portugal.

Where you would want to buy your vacation home will likely differ slightly from one expat to another. For instance, some may search for the best beaches to buy a vacation home in Portugal while others may be more drawn to options in major cities. However, particular areas of Portugal are trendy for purchasing vacation homes, and for good reason, too.

The market for vacation homes is usually affected by proximity to a beach, the weather in the area, the community of people who live in the area, and the availability of good restaurants and bars. This, in turn, will usually have a marginal impact on the price.

Lisbon Portugal vacation homes

As the capital of Portugal, Lisbon is busy with tourists most of the year. The charming old town, filled with great restaurants and bars, is not too far from the city, and it has its own beautiful beaches in Cascais, Costa da Caparica, and surrounding Setubal Portugal Real Estate options. Vacation homes in Lisbon are popular because Lisbon strikes the perfect balance between the old and the new and also combines the pleasures of the city and nature.

Albufeira Portugal vacation homes

Nestled within the captivating Algarve region of Portugal, Albufeira boasts an array of vacation homes amid its twenty scenic beaches. Renowned for its splendid weather and picturesque landscapes, this area allures travelers with its gleaming white dwellings, captivating Moorish architecture, and striking orange-tinted cliffs.

Formerly a distinct freguesia, Olhos de Água, now merged with Albufeira, adds its charm to the coastal panorama. Meanwhile, Luz, a quaint and inviting resort town along the magnificent western Algarve shore, home to the beautiful Praia da Luz, completes the picture-perfect setting for an unforgettable vacation.

Vilamoura Portugal vacation homes

Vilamoura is an up-market corner of the Algarve with world-class golf courses and resorts, museums, Atlantic beaches, shooting ranges, and horse riding. As part of the sought-after Golden Triangle, which is made up of Vilamoura and the luxury resort areas of Quinta do Lago and Vale do Lobo, this resort town offers incredible vacation rental and luxury home investment options. There is even a port for mooring super yachts. It’s no wonder, then, that Vilamoura has some beautiful luxury vacation homes and is a popular holiday spot for the rich and famous.

Lagos Portugal vacation homes

Lagos has one of the largest expat communities in Portugal and is one of the most popular vacation spots in the Algarve. This beautiful coastal town is known for its variety of tourist-friendly beaches, ocean views from the stunning Ponta da Piedade rock formations, and being a hotspot for water sports like surfing and kayaking. There is no shortage of restaurants, bars, and clubs here, and the beaches are beautiful and lively.

Porto Portugal vacation homes

The second-largest city in Portugal, Porto, has grown in popularity in recent years. As home to the stunning Douro Valley and UNESCO World Heritage Site, Porto has plenty of history and a buzzing gastronomy scene. With old boats and winding cobbled streets, Porto feels quaint and reminiscent of the fishing village it once was many years ago.

Madeira Portugal vacation homes

Perched on the rugged cliffs of Madeira, vacation homes offer breathtaking vistas of the island’s panoramic beauty. With their dramatic settings and awe-inspiring views, these residences provide an idyllic retreat for those seeking seclusion amidst nature’s splendors.

Nestled within the municipality of Estreito da Calheta, Praia da Calheta boasts one of the island’s rare sandy beaches, its shores embraced by protective sea walls. Meanwhile, in Ribeira Brava, another charming municipality along Madeira’s southern coast, tranquility intertwines with picturesque landscapes, offering a serene escape from the bustle of urban life.

What is the absolute best place to buy a vacation home in Portugal?

For many people, the Algarve is the best place to buy a vacation home in Portugal. It consistently tops the list for hundreds of holidaymakers and expats alike.

The specific area within the Algarve depends on your interests. If you prefer a lively and buzzing atmosphere with more foreigners than locals, Lagos or Albufeira should be your first port of call.

For a more high-end Algarve experience, Vilamoura would be a great place to look. This part of the country has plenty of luxury vacation homes and an array of leisure activities and sports to enjoy.

For others, Lisbon is the top location to buy a vacation home because it has something to please everyone in the family. Being a buzzing cosmopolitan city, it offers great shopping and fantastic restaurants and bars. Not too far away are beautiful sandy beaches, so Lisbon tends to be a top vacation home spot for this reason, too.

How much is it to buy a vacation home in Portugal?

Portugal vacation homes tend to be of good value when you consider the price per square meter of property compared to neighboring European countries.

For a 3-bedroom villa with a swimming pool in the Algarve, you can expect to pay anything from €450,000 up to €1 million for the more luxurious real estate projects.

In Lisbon, a high-standard family 3-bedroom vacation home is usually priced starting at around €550,000.

Goldcrest: Who We Are

Goldcrest is a buyer’s agent based in Lisbon, Porto, and the Algarve. Equipped with local knowledge, exclusive networks, and international experience, we provide expert, impartial advice on real estate investments and how to buy property in Portugal. From scouting out the perfect property to property acquisition and beyond, we have you covered throughout the process.