Renting out your property in Portugal won’t just help with the costs, but might even make you a little money extra. Here’s what you need to know.

In this guide, we present a selection of important tips around renting out your property in Portugal, whether an under-used holiday home or a pure investment vehicle.

While doing so can bring in a reliable stream of income, it’s crucial to remember that letting out a property is, essentially, running a business. It comes with a range of legal obligations and professional responsibilities.

The short-term rental sector is tightly regulated in Portugal. Falling foul of its rules and regulations could see your home costing you money rather than earning you money. These tips will help you to avoid the pitfalls.

1.      Ensure you’re allowed to rent it out

If planning to rent out your Portuguese home, your first job is to enure you are legally allowed to.

In some parts of Portugal, particularly busy areas of Lisbon and Porto, there are zones where the authorities no longer grant rental licenses. This is primarily due to an excess of existing holiday lets causing housing shortages for local residents.

In addition, as of the start of 2022, the government launched legislation to prevent people allowing short-term rentals in private residential apartment buildings. The finer points of this are still being ironed out and disputed at the time of writing.

It seems likely that test cases will define the final outcome for these laws. In the meantime, it’s wise to proceed with caution if you’re buying (or own) an apartment in a development primarily used by permanent residents. It’s essential that you ask the estate agent such questions even before taking your viewing trip to Portugal.

Finally, if you have a mortgage on your property, it’s important to ensure that the terms permit you to rent it out as a holiday let.

2.      Get your Alojamento Local (lodging licence)

To rent out your property in Portugal on a short-term basis, you must have an Alojamento Local licence in place. This formally registers your property with the local town hall (camara) as an authorised rental property.

Penalties for renting out a home without the proper license in place can be incredibly steep. Sites like Airbnb can be fined up to €32,500 simply for advertising a rental home without an Alojamento Local. (Unsurprisingly, the site now has mechanisms in place to prevent people listing properties without the license).

Like many things in Portugal, obtaining an Alojamento Local is simple, in theory, but can involve lots of paperwork and several visits to government buildings. You can also expect two or three visits from officials to get the paperwork signed off.

The license covers everything from ensuring fire and electrical safety to having instruction manuals and an official complaints book available to guests.

While it’s possible to arrange the Alojamento Local yourself, many owners opt to engage the services of an agency or a lawyer instead. Many offer to complete the process for a fixed fee. This is particularly useful if you’re not based in Portugal or available to attend appointments.

3.      Report your income (and pay tax)

If you’re earning from a property in Portugal, you are required to report your income to the tax office (financas). Usually, overseas residents register a self-employed activity in Portugal in order to do this. (If you have multiple properties, a company structure may be more appropriate).

You will also need to pay tax on the income, although there are deductions for running costs. Furthermore, if your property earns you over €12,500 per year, you will also cross the threshold to register for IVA (Portuguese VAT).

As with arranging the rental license, you have the choice of navigating Portugal’s bureaucratic waters yourself, or engaging the services of somebody familiar with the process. Involving an accountant to deal with this is highly recommended.

4.      Register your visitors

The law in Portugal requires all non-Portuguese visitors to be logged when staying in overnight accommodation such as hotels and self-catering apartments.

If you stay in a Portuguese hotel, you have to show your passport. If you’re renting out your holiday home in Portugal, you need a similar procedure in place. You also have to keep a log of your visitors for the authorities.

5.      Choose a management company (or individual)

Leading on from the above, it’s clear that you need somebody “on the ground” who you can trust. It’s not just about ensuring that the property is clean and ready to delight your guests. It’s also about ensuring that the paperwork detail is under control.

Proceed with caution when choosing somebody to manage your holiday home. They have unfettered access to a valuable asset. Mistakes on their part could cause anything from legal problems to issues with bad reviews.

Seek out personal recommendations and be sure to check credentials thoroughly. There ARE bad and dishonest management companies out there.

6.      Calculate your fees

Calculating the profit from your rental property is far from simple. There are management costs, cleaning fees, insurance bills, condominium fees and many other expenses to think about.

You also need to consider the cost of marketing the property. Different platforms and companies charge in different ways, so you can often save by choosing carefully.

What may – on the face of it – seem a highly profitable venture could prove much less profitable once you include all of the running costs and taxes. Be sure to calculate all of the figures realistically, not optimistically.

7.      Think about personal possessions

Assuming you also intend to make personal use of your holiday home, it’s likely you’ll want to leave some personal possessions there.

There’s a delicate balance to strike. Too many personal possessions out on display risks costly damages, and may in fact be a turn-off to some guests if they don’t share your tastes. On the flipside, you probably don’t want your second home looking too anonymous and sterile.

It’s worth thinking carefully about how you decorate. Owners often keep a locked wardrobe or two on site to store away their own possessions.

8.      Ensure you get good reviews

Good reviews are everything when people look for holiday accommodation online.

You won’t please everybody – but pleasing almost everybody should be a priority. Try to look at your holiday home from a critical outsider’s perspective. What needs changing? What would make it better?

The standard of your management service – everything from the welcome to the quality of cleaning – will have a major bearing on your reviews. This is another reason to be sure to choose the right people to look after your holiday home.

9.      Don’t skimp on insurance

Having a “multi risk” insurance policy in place is one of the Alojamento Local requirements. It must include public liability insurance, and the insurer must be aware that the property is used as a holiday rental.

Normal buildings insurance does not cover renting out your property in Portugal. Be careful not to fall foul of the law by buying inadequate insurance. It’s well worth talking to a recommended broker.

With the right planning and organising, renting out your property in Portugal can prove lucrative and relatively straightforward. However, there are numerous pitfalls awaiting those who are unprepared or willing to take shortcuts. For a simpler life, try not to be one of them.