Collective bargaining for real estate investment

Residencies & citizenships Portugal Golden Visa 🇵🇹
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Well, I’ve spent way too many hours researching this option, and have concluded that real estate is the best way to go. All of the US taxes are deductible. All the real estate is overpriced, but it is possible to negotiate at the moment, particularly as the GV program is expiring and as the country is entering a second lockdown.

The usual applies. Taxes have to be paid, a tax person has to be hired, and there is a lot of paperwork. On the other hand, there is also a 3.3 (guaranteed)-6.5% (self-managed) IRR on something that you have the keys to. If you are interested in going in with me on a group purchase of a bunch of small apartments in Lisbon or a bunch of big apartments with the same IRR in the countryside, let me know by messaging me here. Note that this is just an attempt at collective bargaining when developers are stressed.

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I arrived at the same conclusion! I’m currently in escrow on one property and looking for others. I’m using 11 Pier to acquire, manage, and maintain the real estate. They got me the Tax ID, set up my bank account, and helped me secure a loan.

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We came to the same conclusion too! What do folks think about using an attorney for the purchase vs. one of these services?

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someone is guaranteeing 3.3%?

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Yes, the real estate company is guaranteeing 4%. But then you have to pay tax on that, so it comes out to 3.3%. For Americans the GV costs and travel are tax deductible, so there is no tax in the USA. The company has been in business for 17 years and has a good reputation.

There is also the option of self-managing by hiring an Airbnb company. Expected returns jump to 8% gross.

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Any expenses related to the investment are tax deductible, including travel, lawyer’s fees for the purchase, and local taxes. On 350,000, you will have 28,000 in purchase taxes as a loss carried forward. You will have about 14,000 in rent income per year. Of that, 4,000 will be paid in local taxes.

Over 5 years you will have revenue of 50,000. That is going to roughly be the cost of travel, lawyer’s fees, etc.

As a result, you will pay no taxes in the US.

After inflation, you will almost certainly pay something for your visa even with this rental income. This makes the funds more attractive, but many of them will likely fail so you could also lose your shirt.

If you go the self-management route and the rental market looks like it did before the pandemic, you could in theory make money on your investment. If that were the case, you would probably have to pay US taxes on that money.

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Ah, sorry. I wrote “GV costs and travel.” I should have written “GV costs associated with travel, etc.”

No, the foreign citizenship fees are unfortunately not tax deductible!

The real estate market in Portugal is thought to be overvalued by UBS, so I do not see exiting in 5 years with any kind of profit. But this option at least has no losses.

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Someone is guaranteeing downside/buyback on the property? or you’re just saying that you can’t lose everything because it’s a deeded piece of property?

My concern with such a high yield is that the company isn’t going to do maintenance on your property - they’ll just let it run down and then you pay on the back side.

I agree that stuff may be overvalued. It’s just hard to know. On the other hand… inflation. There’s something to be said about owning something real.

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I received some emails on a similar proposal. I think if you buy in their complex and they manage it, then they will guarantee you 4% returns and you get to use the property 14 days a year for personal stays. At the end of 5 years they guarantee (require?) a buyback. They don’t exactly say they will buy it back at current market rates so the inflation gain may be out the window if they are buying back at your cost basis.

If you wanted to buy a random property on your own, perhaps you could find someone that would guarantee 4% returns but I sort of doubt that as there are too many unknowns about maintenance, repairs, tenants, etc. They can probably guarantee this in their own, new construction buildings because they know there won’t be many problems in the first 5 years and by law they probably have to cover any problems anyway (similar to a construction warranty).

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That all sounds interesting, and definitely worth exploring, however, I would just advise some caution when it comes to any “guarantees” (I am speaking from my 20+ years of experience working as a corporate attorney). A guarantee sounds very compelling, and it certainly can be, but it is very important to dig down into the details. First and foremost, you must carefully look at the terms of the guarantee, when it is triggered, what are the exceptions, etc.

Second, and more importantly, who is it that is standing behind the guarantee? Just as a fund can fail, so can a real estate developer or investor (and remember that in Portugal, the funds are regulated by the CVMV, which gives some comfort). Quite frankly, I’ve probably seen more real estate developers go bust than funds, as they are usually taking on entire projects, i.e. with enormous risks. Funds diversify their investments, and so may have one or more bad investments, and you may not get all of your capital back, but presumably if you find a decent fund with experienced management, you will not lose all of your money. So all of that is a long way of saying that it’s one thing to personally buy a property outright and own title. But if you are buying through a developer and relying on them for any sort of guarantee, you should do your diligence on who they are, how long they’ve been in business, what their balance sheet looks like, whether the guarantee is backed by a bank, etc.

Finally, and this is perhaps the most important consideration of all, even if you have covered points one and two above (i.e. you can exercise the guarantee and the guarantor has the financial wherewithal to cover your claim), if they disagree and dispute your claim, are you really going to go after them? If you have lost all of your EUR 350k investment (or more), then yes, you probably will. But what if they didn’t return your 4%, but only 2%? Or if they will only buy back the property for less than your original investment (e.g. EUR 325k or 300k)? At the end of the day, hiring lawyers is an expensive and time consuming process (sorry about that!), and you may end up throwing good money after bad. Most of the time when people have lost money on an investment, they usually just end up walking away.

Please note that I am not by any means discounting an investment in real estate. I admit that at this point I am personally still leaning towards the fund route for a number of reasons, however, I too have considered real estate, and am very open to any investment (and will be happy to consider this or any other opportunity if someone has more details). Rather I am just trying to play devil’s advocate a bit to help look at the issues carefully and soberly. It’s not completely true that there are no guarantees in life. There are some. But many of them are not what they appear.

Anyway, that’s my two cents (not guaranteed!). :grinning:

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Hi William, I recently joined the group and have done my dd on most of the funds- happy to share my conclusion if you private message me- I have tried private messaging but can’t seem to find the option on my profile or I am missing the button :slight_smile:

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Is this something like what is offered by Mercan? Otherwise, I am not aware, and would agree with others, that any “guaranteed” return is highly suspect. That alone might make me look elsewhere, to be honest.

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I think what the OP is saying is, for example, to get 4 or so people to buy a 4 unit building in Lisbon and then hire a company to manage it/rent it at a guaranteed return of 4%. The concept is similar to what Mercan offered but without any buyback at the end. For the reasons some others have stated, I think it would be impossible for a management company to guarantee a specific rate of return without a lot of conditions and caveats. It could make sense for them to do that is a large building they own or control or have maintenance infrastructure already in place, but for a privately-owned small building I can’t fathom anyone offering that deal unless they carve out any unusual expenses or risks (e.g., replacing the roof, tax increases, buying new furniture, insurance, etc.). These are all going to eat away at your “guaranteed” returns.

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Thank you. Point well taken. Self management can be a nightmare from abroad, but could be OK if one finds the right company.

Frankly, I’m just fed up with terrible fund options or overpriced real estate. I thought that this would be a piece of cake, but it has turned into a 3 month long nightmare.

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3 months! You’re new to this huh? :rofl:

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Ha ha. I’ve spent way to much time on this. At what point does this reach 350,000 Euros worth of work on an investment at that amount?

Does anyone know anything about Portugal Homes? Their company says that they will write in the contract that they themselves will buy back the property at purchase price in 5 years and pay 4% rental returns in the meantime, and the returns are net, not gross. I have read a lot of reviews online about them. Most of the negative ones seem like the OP was in clear breach of contract or something like that and just frustrated. But I have also heard that some people were dissatisfied with the final product of discounted pre-market offerings by developers. They have been around for a while.

It is very frustrating because you can find a nice old place for not much money and fix it up and end up with a palace. But that is not how the GV program works at 350K.

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I think that is right.

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Hi Deepak, please share your analysis. Have messaged you. Thanks

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ok i have recd numerous requests so now just putting it in summary - most are like small businesses - so they don’t meet criteria except Iberis for now - still doing dd on them and also speaking to other funds.

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Few things worth doing are easy.

Pre-market developments are always problematic, I think. having dissatisfied people is probably just normal. I mean, you’re buying something that isn’t built yet. So you don’t know what you’re buying, really. Not surprising that people are going to disagree about whether what got built is really what you wanted. :slight_smile:

Can PH afford to buy back properties? I’d guess that it’s like an insurance policy - in a normal market where there are only a few such failed properties then yes, but in the case of a massive failure of the broad market then no, and they’ll just let the entire company go bankrupt so you’re stranded. Me personally, I’d probably take that guarantee still, because if there’s a broad market failure, let’s face it, you’re probably screwed no matter what.

In reality most likely that business model does work. From what I’ve ever been able to tell, a fair bit of the costs of a rental property is the mortgage, or other cost of carry of the asset. The next fair piece is maintenance of the asset. If you don’t have to pay either one of those, your returns are going to be fantastic :slight_smile: and guaranteeing a 4% yield and paying the management costs and paying for “insurance” to cover losses on failed deals in a normal market while making a profit is probably pretty damn plausible.

I would question whether PH is chipping in on the maintenance costs, or if you have to carry them. In other words, what does “net” really mean.