Creating the best and lowest cost GV package with the highest long term benefits

Pros and Cons, regarding best, or cheapest and best way to acquire GV citizenship either through a GV fund or making a direct equity investment in a PT company with a project / development that meets all the legal criteria.

As a developer of health and wellness hotel complex in the Algarve (50% long term users) we are seeking views and personal observations from participants of this forum (whether they just want to acquire a second passport or looking for permanent stay in Portugal) and their thoughts on the best way to set up and structure a GV fund or GV investment opportunity, with this information to hand, we are looking to create the quickest, easiest and lowest cost method for applicants to acquire a Visa through what will be our own unique setup.

The 2 options.

First option, “Transfer capital of at least €350,000, destined to acquire units in investment or venture capital funds aimed at providing capital to companies that meet certain requirements.”

Second option, “Capital transfer of the amount equal to or above €350,000 for the establishment/reinforcement of a commercial company with its head office in Portugal.”

They both have good points and not so good points going for them, with the GV fund tending to be more expensive overall, the company equity investment opportunity downside, is the commitment to providing 5 permanent jobs per €350.000 tranche, not really a problem though as we will probably end up with many times more.

The second option has the potential to be more flexible from our point of view, we are working on a structure so that any initial equity investment will attract a 5% pa ROI and will also have the possibility to be rolled over into a longer term shareholder profit sharing position, with a 10% return pa over any extended term.

Which ever route we go down initially (maybe both eventually) we are only looking to attract a small number of GV investors up to 10% of our equity, we would be in a position with both procedures to offer the 5% ROI with a guaranteed return of €437,500 after the 5 year period required, €656,250 if the 10% 5 year extension option is taken up.

Other possibilities we are considering within the company equity option could be salaried employment depending on skill level, also the potential for low cost long term living as a valued shareholder, if the extended option was taken up and the long term 10% ROI reduced to 5% that low cost living could turn into free living for life with a free and clear annual €21,875 disposable income.

Just think about that last paragraph for a moment, no more rent and rates to pay ever again, no more energy bills, no water or sewage bills, no maintenance or insurance costs, no cooking or cleaning, no washing or ironing, no food or drinks to buy, all meals would be free of charge in one of the restaurants, teas coffee’s and snacks in the coffee bar any time, many other benefits also available, this free living for life is for two people so doubly beneficial.

Also living on site would have many other benefits, free use of all the hotel leisure facilities including a nice big heated pool and his and hers saunas, as a valued shareholder free transfers to and from the airport, use of the company car pool, plus all excursions that are provided for the hotel guests, just to put a slight dampener on this, any active shareholder would need to fit in with the ethos of the project and be compatible in all other ways.

For those who maybe interested to find out more in the aftermath of this fact finding exercise, message me for more details. (genuine interest only please)

Just to let you know we are working with some of the best lawyers in Portugal regarding this proposition, so don’t disregard this opportunity as being too good to be true, also take note, the value of our assets will always be more than 500% of any equity we take on.

So if anyone here has time to make any constructive comments regarding these two basic funding options it will be very much appreciated, it should be noted that all the above info is only an exercise at this time and is not as yet set in stone, so anyone interested to invest with us under the GV scheme should contact us directly and negotiate any investment or equity funding based on their own personal circumstances.

warm regards peter

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It’s unclear why the fund structure would cost more overall versus the business structure. I suppose it depends on “more expensive for who”. Few of us here I think have dealt with the company option so we can’t comment on that one way or the other as to whether it is easier or not. It’s hard to understand how the fund would be more expensive than running a business, if structured in a way that actually made sense and met GV criteria - you’d have to create a new company for each investor, and the management company subcontracts the work… accounting overhead? I guess it’d be blended into the main business that’d already have to have accounting/HR functions… but you’re also adding another shell for the government to levy a tax on too. running a fund means overhead, but clearly it’s only 1-2% of capital, Rock Capital seems to do it for under 1%. It might be that it’s more expensive for YOU because you probably don’t have the staff with the right experience to run a fund, and you’d have to recruit it, but presumably you could hire someone like Lince as well…

@tkrunning lists some other company that has the employment scheme worked out as a pre-rolled package, you might talk to them.

Given the numbers you’re throwing out, I think you’re setting a really, really high bar on proving that it isn’t too good to be true. If somehow you can do this, I don’t think anyone is going to care how you structure it as long as SEF approves of it. I’d buy it now, if you could prove those numbers, and I’m not sure I’d even care about SEF/GV. I just don’t think you can, in any way I’d believe. TANSTAAFL… someone is paying for lunch here.

If you’re only looking for such a small chunk of the overall equity from GV… why do you care at all? Seems like you’re adding a ton of overhead on your part to raise only a small fraction of your equity, and at the numbers you’re talking about I’d think you’d have no issue raising the rest of the equity without all the bother.

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I haven’t developed a sharp investor’s insight but I keep learning from @jb4422. Nonetheless, I am thrilled that you and other folks posting here are continually innovating and looking for ways to make this process more attractive. Your vision sounds appealing for sure!

Hi jb4422, many thanks for taking the time to respond, am a bit late with reply due to notifications not notifying.

Regarding your first point, the GV fund option appears to me to be the more expensive overall, with various fees to be paid for the privilege of investing with them.

Investing in equity in a company such as the one we are setting up can be more flexible for both sides of the equation, with no expenses on top for the investor as the company pays all lawyer fees due when setting up the contracts.

Its basically a long term (5/6 year) business loan (with potential for several investors) the equity investment structured to be eligible for the GV scheme provisions, fully repaid at end of term plus any bonus or incentives agreed at the outset.

Working directly with an organisation saves time and money rather than through a third party, we are also working with one of the top tax lawyers in Lisbon who would be able to structure any investment to the investee’s best advantage.

TANSTAAFL…someone is paying for lunch here.

(Yes, but they won’t notice it.) and there is always an exception to the rule.

How will this be formalised, ? well not to go into too much commercially sensitive detail, the bottom line is that any of the small number we take on will be subsidised by the majority long term users and short stay holiday makers, a small and probably unnoticed percentage of the fees and tariffs would be allocated to these valued initial and early bird investors, enabling this free living for life scenario to be actualised if taken up. (the early bird catches the worm)

Going this modest equity route from a family company perspective rather than taking on a JV partner or any major investor. (very hard to find in these difficult times) means we get to retain full control of the company and the direction it takes well into the future and from this GV perspective we can allocate any benefits and incentives as we see best fits our funding requirements.

warm regards peter

P.s. appreciate any and all further input or feedback.

There are never exceptions to TANSTAAFL. Any exception you think you see just means you aren’t digging far enough. It’s quite common however that someone else is paying for it and not noticing they are doing so.

I still don’t know how you are coming to the conclusion that the fund option is more expensive. It depends on the fund. I agree some funds are prohibitively expensive, but some just take 1-2% of assets annually as a fund management charge. That’s not unreasonable if the fund still nets 4-6% p.a. after fees, which is not an unreasonable expectation, and the fund manager does need to pay for their lunch.

A bunch of random thoughts.

Let me interpret what I am hearing:

You have some sort of resort entity with customers of some sort, and presumably decent cash flow.

(Even this year? Guess it depends on the terms you have people locked in under. How many are going to end up too poor to pay the upkeep though in post-covid world? Please don’t tell me this is a greenfield project; if so then every number you state is now pure speculation…good luck with that.)

You need capital. (For what, exactly?) You’re hoping to pick up a number of smaller investors who, neither individually nor collectively, will “rock the boat”. GV investors represent a pool of cash that fits that bill - none are ever likely to stump up > EUR 350k, it’s very sticky money by definition (can’t leave for 6 yrs), and the investors probably aren’t really even interested in activist ownership so you can do what you want still. You’re willing to pay more for the capital because either you’re having trouble finding the money another way (for reasons that I as an investor would want to explore) or you’d rather pay more for “friendly” capital.

(I’d have to think about it, but I’d say that 5% on a 5-6yr unrated note is not exactly top-dollar. Maybe it is in the EU now. You’d have to say more about what the upside is in any event.)

If you’re merely observing - I’m not being overly harsh here. It’s just reality. Smaller businesses are very often capital-challenged, especially small family firms - it takes a certain size to be able to tap capital markets, and it’s larger than you might think. Why else for all the ads about “easy loans to businesses” or people going on Shark Tank for $1-5mm if there were easier ways? So they end up paying fairly dearly for capital no matter what. Shark Tank would represent “friendly” capital but as you see it’s still often not cheap.

I would guess you will find that most people will prefer the fund structure, because it’s clearer and cleaner, both for SEF and for the investor. Equity ownership plus the note I think will cause additional expenses and more issues with SEF; you’ll have to develop a case for each investor for SEF approval based on whatever the conditions are at the time, you’ll have to allocate and value shares, etc etc etc. And frankly it has the perception of being just too complex. Buying a house or a timeshare, or buying into a fund are things that most people most of the time at least think they understand , and there are still all sorts of threads here discussing the various difficulties and costs. Ownership in a business sounds hard to many people. Certain people might be interested but it may dissuade more - or you will end up fending off a lot of unsophisticated investors who are interested in the perks but can’t cope with the bother, either causing you a fair bit of pain up front, or leaving you with really unhappy investors in the back.

And it IS more complex. Direct equity ownership of a live business outside a regulated stock market just opens up whole new cans of worms. Consider the thread where people are struggling with merely opening a corporate shell to hold depository shares for their 401k/retirement accounts. Now you’re talking about shares in a live operating company with customers, revenue, expenses, depreciation. We just went through a whole kerfluffle in another thread about IRS regs around passive foreign corporations. Active foreign corporations are a whole other thing. Let’s assume your accountants do all the work for PT taxes. I still have to do my home country taxes, and you are no help for that. I’ll probably want a US lawyer as well to deal with any other ramifications of owning a foreign company - for which I’ll probably want to form a US corporation to hold the asset, too. Add in clever structuring for those flexible perks/benefits and it could get even worse; it just depends, but it’s a big unknown.

So I get where you are coming from, and you are right in that an equity investment could be structured more advantageously - but at the price of complexity, and my argument would be that you probably cannot structure an equity investment in such a way that it’s actually simple enough to attract more than 3-5 investors in the GV space without ending up with something that looks like a fund investment or limited partnership anyway. For something returning 5%… shrug

The idea of a 5% long-term ROI plus housing for life… I don’t think you can fit that into a straight up fund investment, no. That’d have to be a limited partnership, at least, and I’d suggest that’s the better structure than your equity+note. The “guarantee” of the note might seem good but what’s it backed by but the same assets that the LP owns? OK it’s senior tranche but I’m not sure how much that’s worth unless you have underlying assets to specifically encumber and I bet you’re trying to avoid that. You can set up a special purpose vehicle of some sort with a defined capitalization and defined units and sell those units, and it will fit nicely into SEF requirements that way. How that free housing gets valued and taxed would require some work but I’m sure there’s precedent.

Your investor still needs their own lawyer to look out for their interests - even if your lawyer does all the work to figure out the structuring, I would still want it reviewed by someone I was paying - wouldn’t you?

If I’m guessing right about what you’re doing, there are already a number of other investments available in this space - buy a share in a hotel/resort refurb project, get 2wks/yr and/or some return; or something like Sheraton Pine Cliffs that’s structured more as a timeshare. You could investigate those, learn how those are structured, and borrow what’s been learned, instead of re-inventing the wheel. There was a really interesting project in Evora to renovate a monastery that had really good terms; I was interested but it disappeared before I could dig into it - as you’d expect for a good project. Sergio at Portugal Homes had that one.

You might simply ask one of the existing GV funds for capital. One or two of them might be interested in a more offbeat investment and the terms would be simpler for everyone. It feels like a fit for SIF maybe. Sure the end investor is losing a percent or two in friction but that’s the price of less bother.

So really, given that there are already folks out there doing this, why are you here asking? Because you’re hoping to differentiate somehow? Advertising? You didn’t know other people were doing this? Or you’re fairly small and it’s difficult to break into the space so you’re looking for another angle?

Why am I writing all this? Curiousity I guess. I might learn something about how things work in Portugal. Might be a total waste of time, but it’s an interesting thought exercise. What goes around comes around, sometimes. Maybe someone else here will point out where I’m wrong, and I’ll learn something there too.

I feel like there is something I’m missing about how business is done in Portugal; I saw this in the SIF fund’s investments, and a little in Bluecrow’s, where there’s a small-beans equity investment combined with a loan (company valued at EUR 250.000, fund buys 10% for EUR 25.000, then lends the company EUR 3.000.000 ). This sounds like what I’m hearing, again. @william.reichert might disagree but this isn’t super common in the US. Curious why it’s structured that way.

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Thanks @jb4422 for noting this thread to me – hadn’t seen it before. I have no idea what the proposition is, but I would certainly want to diligence it thoroughly. I’d want to see a full presentation with business plan, track record of previous projects, etc. And personally, even if that all looked good, I tend to be quite skeptical about investing EUR 350k in one asset. The first rule in Investing 101 is diversification. Can’t really comment on the project otherwise without seeing a proposal, but certainly happy to take a look at it and see what the value proposition is. But otherwise, it looks like you’ve made quite a few very good points about it.