Episode 32: Joe Pyke's Guide to Portugal's Real Estate

Scott Williams: Sweet Home Santa Barbara, where the skies are so blue. Sweet Home Santa Barbara, what’s worked for me, can work for you.

Jonathan Robinson: Welcome back friends to Sweet Home Santa Barbara. I’m your co-host, Jonathan Robinson and with my co-host friend and realtor.

Scott Williams: Scott Williams.

Jonathan Robinson: And Scott, I’m excited that we’re going to have a guest today, Joe Pyke, who I will introduce in a moment. Joe Knows a lot about European rental and real estate markets, especially Portugal. Let me introduce Joe, he’s actually from the UK. He’s always had a keen interest in the property market and bought his first property when he was just 21 years old. Over the next 15 years, he went on to buy sixteen more in three European countries and has spent many years following world property markets. He’s in the UK rental business, which is still operational today. He currently lives in Portugal, having spent many years studying real estate, and has a good understanding of the market in Portugal. And that’s what we want to talk to you about Joe. Welcome to Sweet Home, Santa Barbara.

Joe Pyke: Thank you very much. Thank you for having me.

Jonathan Robinson: Yeah, you know I’m interested in knowing what it’s like doing business in a foreign country such as Portugal, every country is different. So, what’s it like doing the real estate and rental business in Portugal?

Joe Pyke: Well, it’s quite simple in Portugal. Portugal is a very small country. There are only 10 million people in total. The property market is very straightforward. It works similar, I would say, to the US but not quite the same, you know. There are certain different things that happen. That breaks down into. If you want to buy a property in Portugal, the first thing and the first stage is what we call as a promissory contract. Now I don’t know whether you have this in the US or not. This is where you found a property, you want to move forward with it, and you come up with a promissory note, a promise to buy the property. At this point, you would be expected to put a 10% down. That is then non-refundable, at this point you will be bound by that property. This is kind of, an extra stage which I don’t know whether exists in the US or not.

Jonathan Robinson: Mm-hmm.

Joe Pyke: After that, the next stage is you check exchange money, and you take ownership of the property.

Jonathan Robinson: I’ve heard that you know like sometimes when doing property stuff in Mexico, there are all kinds of Mexican laws and bureaucracies, does that exist in Portugal or are they like eager for buyers?

Joe Pyke: No, they’re eager for buyers. And it’s like you say, it’s a very simple process, you know, it’s a case of just provide the documentation, which again is simple and standard. It’s one of the easiest buying processes in Europe.

Jonathan Robinson: Hmm.

Scott Williams: But Joe you mentioned that the people put 10% down as like a deposit and that when you reach that stage in a negotiation that you potentially, you have to move forward with that. Prior to this point, where your money, you know, could be lost, is there a process where you examine the property or do inspections or does that take place before that happens?

Joe Pyke: Absolutely, yeah. Absolutely, all of that happens beforehand. You need, would have to, your lawyers or whoever is representing you, would have to have full eyes on the documentation against that property. They would have to do all the due diligence because everything in that contract that you’re signing when your 10% goes over, would always lead towards the final contract. So, you know, if there was say, I don’t know, some painting or something that needed to be replaced, or maybe the boiler was broken, and part of the contract is when I take ownership of this property, those things are going to be changed, they would be put into your promissory contract. So, when your 10% goes down, those things would be done and then you wouldn’t move forward to complete on the property until those things are taken place.

Scott Williams: Okay, that sounds like there’s a protection for the buyer and there’s a process of checking out the property and make sure it’s a good property, legally and physically that we would expect. That would be very similar to the United States in that regard.

Joe Pyke: Actually. Yeah.

Jonathan Robinson: You know, you mentioned in the bio that you’ve done, you know, property and three European countries, is there a lot of similarity between all of Europe or is each country like very different?

Joe Pyke: Each country is very different. You know, I would say the most tricky country of Bolton is Italy. There’s a lot of red tape there and it’s very difficult to buy there, perhaps wouldn’t buy any other properties in Italy. The only reason I bought there is my family are from there. I’ve also bought in Germany and Portugal and the UK.

Jonathan Robinson: Mm-hmm. Portugal seems to be your favorite probably.

Joe Pyke: Yep. I’ve made more money in Portugal than I have anywhere else. So for me, it’s a solid investment, and that’s the market that I’m looking at right now.

Scott Williams: Where do you live in Portugal, Joe?

Joe Pyke: I live in Almancil, which is just outside Vilamoura. It’s part of what we call the Golden Triangle.

Jonathan Robinson: Why is it called that?

Joe Pyke: That’s where all the money is?

Jonathan Robinson: Nice term.

Scott Williams: So, is this coastal?

Joe Pyke: It is, yeah, you know, I live about maybe 5 minutes away from the beach.

Scott Williams: All right.

Jonathan Robinson: I’m curious. Now, you’re getting me interested in moving to Portugal Joe. So, what, say, I don’t know, a two-bedroom condo cost five minutes from the beach in Portugal.

Joe Pyke: I would say anywhere from about 350,000 up to about 600,000.

Jonathan Robinson: Uh-huh. Same as in Santa Barbara…not!

Joe Pyke: Nah!

Scott Williams: Not.

Joe Pyke: There’s the big difference, right?

Jonathan Robinson: Yes, yes.

Scott Williams: Well, we get people in Santa Barbara that want to spend 600 or 650,000 and you get a one-bedroom 500 square foot condominium that you could probably rent out for about $3000 a month. And that’s what six hundred thousand dollars gets you here. What happens with your 600,000 in Portugal? Give us some sort of idea of what that might be. We’ll start at that price.

Joe Pyke: I would say in the summertime, we’re not looking at 3,000 a month. We’re looking at that a week.

Jonathan Robinson: Wow.

Joe Pyke: Just 3,000 a week over the summer months which we call ten weeks. So, that’s when all the tourists come into. You’re making some serious money. And if you’re looking at about, like around the Algarve, which is the southern part of Portugal where all the beaches are, there’s also around about 20 golf courses, so there are 2 shoulder seasons.

Jonathan Robinson: The rental market can be very, very lucrative.

Joe Pyke: Very, very and that’s, I think, reflects in the prices and I know why you say compared to Santa Barbara, they’re still relatively cheap. But for Europeans, they are still quite expensive.

Jonathan Robinson: And who takes care of all the work involved in renting it out? Do you have a company that does that?

Joe Pyke: Well, depending on where you buy, some of the times you’re buying into a development that already has a management and rental company in place, but it’s not, we at Berkshire Hathaway Portugal property, we would provide that for you. So, we have a rental and management side to our company.

Scott Williams: Okay. Well, if you bought a place in Portugal, you know, 100% ownership of this kind of minimum we’re talking about at this point, do you, say you had three or four friends that wanted to share that with you or there are other people in Europe that wanted to share it, is there any kind of shared ownership or is it just always 100%? How do you do it there?

Joe Pyke: Yeah, it’s always 100%. We do very, there is shared ownership, but it doesn’t happen very often.

Scott Williams: Okay. All right. Well, that’s just good to know. Now, in a condominium in Santa Barbara, they wouldn’t necessarily let you rent the property out by the week. So, that sounds like something you can’t do. But obviously, you’re saying that you can do that. Talk to us a little bit about what that boils down to.

Joe Pyke: Well, that’s actually the norm for Portugal, especially in the South. I mean, even in the cities, you’re still allowed to do short-term rentals and a lot of European. So, travel within Europe is very, very inexpensive. So, you got a lot of people that would travel to Portugal just for the weekend. Therefore, they’d only need a short-term rental. So, that seems to be the and is the biggest rental market.

Scott Williams: Well, do you see this is an example just, can you get a mortgage on something like this? Or is this a cash purchase?

Joe Pyke: No, no, absolutely, you can get a mortgage. What I would say is for an American buying in Portugal, you would have to put down about 30%, maybe 35, but you’re looking at mortgage rates of about 3.5 percent fixed.

Jonathan Robinson: Wow.

Scott Williams: Okay. Now, I and some of our listeners have jobs or income streams here in California or in the United States. And so, do you approach a bank of some sort in Portugal and say, look, I make $300,000 a year or you know whatever our incomes are, do you then get a mortgage based upon the fact that I have an income in California? Or how does that work?

Joe Pyke: Yeah, exactly that, they would take in your earnings in the country where you’re from and they would base it as a multiple of your earnings basically.

Scott Williams: Okay. And do they take into account that the property also earns income? Does that help?

Joe Pyke: They don’t take that into it. It’s a case of It’s always based on what you’re earning as opposed to what you could earn.

Scott Williams: All right. Okay.

Jonathan Robinson: Do they take into account things, like your assets? Like, if you own a house free and clear, or is it all your employment earnings?

Joe Pyke: It’s all your employment earnings. They don’t take it into account anything you earn enough for the properties.

Jonathan Robinson: I’m wondering for people who might be interested in moving to Portugal because it’s cheaper and they can live 5 minutes from the beach for less than Santa Barbara. What’s it like there? Do many people speak English? Are the people friendly? What can you say about that?

Joe Pyke: Everybody speaks English. Everybody. It’s like there isn’t a single place you can go into in the Algarve where they don’t speak English. It’s quite incredible. I even go in and try and speak Portuguese to them and they always respond to me in English. It’s a great place to live. It really is when we’re talking about things being cheap, I mean you can go and have a like what we call prato do dia, like dish of the day and you spend maybe €7.58, you get three courses plus a glass of wine, and the coffee at the end.

Jonathan Robinson: Wow. Okay. Goodbye California.

Joe Pyke: Yeah. Well, we’re seeing so many buyers now from California. There’s a huge influx into Portugal. 35% of our buyers last year were American. The biggest areas that are buying is California and New York.

Scott Williams: So, what does a, you know, we can leave this condo or keep it in our discussion here, what sort of things, what do Americans buy? What are people looking for? What’s your market? Talk to us a little about the market, just generally.

Joe Pyke: Okay, so there’s always a wide swing. So, our average buyer is Now 44 years old.
Even though Portugal is the number one place to retire to in the world, there’s a wide variety of what people are looking for. Some people are looking for the 2-bedroom condominium lock up and leave. Other people are looking for a bigger property, maybe 4 or 5 bedrooms, modern newly built with a little bit of a garden space and it all depends on how long they think they’re going to spend in the country. Now, some people come for 2 or 3 weeks a year. Other people want to be there for 4 to 5 months. So, there really is a big, like a wide variety of what people are looking for. Fortunately, we provide all of it so we’re selling everything from you. Your 1-bedroom studio apartment to a huge 5 or 6-bedroom villa.

Scott Williams: Well, Santa Barbara has those 5 or 6-bedroom villas: Montecito, Hope Ranch are fine areas here. Let’s talk a little bit about that market. What do the people, you know, they’re there for 5 or 6 months of the year, then that leaves half of the year when the property that they’re not occupying it, what can you do with a property like that and what code of, sort of price ranges are we talking about?

Joe Pyke: Well, at least these Villas go up from a million, probably to, well, right up to 30 million depending on where you’re looking to buy. If they sat empty for those 6 months, you would need a management company to take care of the gardens, to make sure the property is sorted out properly, you know. And that again, you know, is not expensive.

Scott Williams: Do those properties also get rented out?

Joe Pyke: Depending on the buyer? Some people don’t want to have other people in their properties. Other people will rent them out, say normally for a 10 to 12-week period. Other people put them on the rental market the entire year. But yeah, they do get rented out and they get really good money. If you had like a 4 or 5-bedroom house on a golf course, you’d be looking at maybe 7,000 to 8,000 a week.

Scott Williams: All right, that’s good

Jonathan Robinson: I would imagine the weather, I was just in Spain, the weather was perfect, and you know, October, November, when it’s the best time of year to be in Portugal?

Joe Pyke: There is no best time of year, it’s always fantastic. But what I would say is the weather in The Algarve certainly is very similar to that of California. And I would say more San Diego. No, it’s
warm most of the year.

Scott Williams: So, it doesn’t freeze?

Joe Pyke: No, unless you’d ride up in the North on the Spanish border, then, yeah, you will, it will freeze there but other than that, no.

Scott Williams: Okay. One of the things that I’ve helped people a lot with over the years, in terms of selling properties, is help them prepare it for sale. Do the sort of things that, you know, make it look really good prior to sell. Talk to us a little bit about the buying and selling and fixing up, what’s that market? What happens there?

Joe Pyke: Well, it depends on who you go with really. But, I mean, there are plenty of tradespeople in Portugal. It’s kind of what they live off, you know, a lot of people that’s what they do, and it’s simple enough to find these guys. And it’s again, not very expensive. The average wage in Portugal is about €900 a month. So, to find these guys, you will find them and they’re cheap and the standard work is fantastic.

Scott Williams: Talk to us a little bit about the economics of buying and selling real estate or appreciation rates or depreciation rates. What’s happened over the last, you know, during the time you, how long have you been there? What’s the period of time we come-

Joe Pyke: I’ve been in Portugal for 6 years. I’ve been involved in the company since it opened in 2008, which was obviously, probably the worst time to set up any business because the market completely crashed, right? That was worldwide. What we’ve seen since then, is property prices going up and up and up and up, you know, it kind of continued, I don’t know. We keep saying it can’t, last year property prices went up all over the whole Portugal, 18%. The year before 12%. You know, what do I expect then to see this year? I would say about 10%.

Scott Williams: All right. And what sort of things do you think are important to mention to a potential buyer from America? What occurs to you?

Joe Pyke: I would say, to study the area is the main thing. You know, what we see is a lot of Americans coming in that, don’t know Portugal. It may be their first visit there, so they haven’t done the travel and they haven’t seen the areas. They haven’t closed down on what it is that they’re looking for. So, they’ll go from Porto, Lisbon, and the Algarve. Well, it’s only a 6-hour drive, so it isn’t particularly a huge distance, to an American 6 hours is nothing. To a European, 2 hours is a long way. It is really a case of trying to narrow people down. It’s either they want the city, or they want the beach. And that’s kind of how I tried to do it. If they want the city, Lisbon Oporto. If they want the beach, then it’s the Algarve. And then when you get to the Algarve, it’s almost 200 kilometers of coastline, so about 150 miles, say. And so, then within that region, you still have to try and narrow people down because otherwise, it’s a long day.

Scott Williams: Okay.

Jonathan Robinson: Some friends were just in Portugal, and they said that there is a pretty bad drought and that people are worried about water. Are there any natural disasters or droughts or things that one has to be really aware of?

Joe Pyke: Nothing really. I say the only thing that we do get occasionally is localized fires and they tend to be very small, and they’re dealt with within a day or so. They don’t really cause any major problems. They tend to be inland, and they tend to be in areas where there are no residents.

Scott Williams: What’s the taxation situation like, as far as real estate goes in Portugal?

Joe Pyke: Taxation in a purchase, you’re looking at about 7% of the purchase price. That covers all of the taxes of buying your stamp duties and any other taxes that apply.

Scott Williams: So, you have taxes to pay of 7% of the purchase that occurs at the time that you make the purchase?

Joe Pyke: Correct.

Scott Williams: Okay. That’s different than the United States, okay. So, that’s a cost there. But say you bought something for, you know, a million dollars, and 5 years later, you sell it for a million and a half.
What happens to the person who does something like that?

Joe Pyke: So, a capital gain is going to cost you about 28%.

Scott Williams: Okay.

Joe Pyke: That can be rolled into another property, so you don’t have to pay it upfront. If you sell it, and you purchase another property, you won’t pay the tax on it, providing that the property is more expensive. But it isn’t the tax has gone away. They’re just rolling it over. So, by the time you sell the next property, their 28% is going to look a little prettier, right?

Scott Williams: Okay. All right. That’s also a little different. That’s, we had rules like that, prior to 1997 here but now, so that’s an interesting thing. So, you just keep rolling it for, what happens when you die?

Joe Pyke: Then it’s, well actually, there’s no inheritance tax in Portugal.

Jonathan Robinson: So, dying, is a great benefit there?

Joe Pyke: Right, benefit, yeah, yeah.

Jonathan Robinson: So, everyone should be doing it.

Joe Pyke: Well, that’s why I started buying in Portugal, to be honest because, I know I said, I have 16 properties. I’ve now got 22 properties. And a lot of them are in the UK. As I bought one in Italy and I bought in Portugal. The one in Germany I’ve sold, but I wouldn’t buy in the UK ever again because there is an inheritance tax there. So, now that I buy in Portugal, I buy and sell. So, when I buy as I said, there’s around about 7% fees. If I sell, there’s around about 5% fees. But the jump in the way the properties are going, especially the areas, I’m buying in, I’m finding about around about 20% a year. It’s the increase in value, plus, I’m buying things that I need to do some work, too. So, I’m adding value to them. The main reason for buying in Portugal is there’s no inheritance tax. So, anything that I do now, I will leave to my children.

Scott Williams: All right, well, you talk a little bit about the market not being quite as brisk. You know, we’ve had a change in the market in the last year from a very brisk market to somewhat less. You mentioned that it dropped from 18% to more like 10%, is that pretty much how things have happened there? Not a lot of effect.

Joe Pyke: I think it will happen. I don’t think we can keep going up at the rate they’re going up. You know, 18% is a lot, the property prices to rise. Why I say 10% is because there’s, you know, interest rates have gone up in Europe even though the 3.5% now, last year, they were 1.5. So, a 2% swing does make a difference. So, I would see a slight slowdown in the market. But the big thing for Portugal is supply and demand, you know. That’s just the same in any business. It doesn’t matter what you are in. We don’t have the supply, but the demand is so high right now, that it will keep property prices going up.

Jonathan Robinson: So, Joe, I’ve heard something about Golden Visa like if you want to have permanent residency in Portugal. What’s that about?

Joe Pyke: Yeah, so the Golden Visa gives you, you know what I call free access to Europe and the Schengen areas. You can invest, as little as 280,000, you can park your money, you get around about three percent return on this investment. And at the end of a period of around about 5 to 6 years, you will either be able to get a permanent residency or a Portuguese passport. What that is you can spend as little or as much time in anywhere in Europe as you see fit. So, right now for an American, if they were going to Europe, they can spend, I think, a maximum of 60 days, with a Golden Visa and the passport, you can stay as long or as little as you want.

Scott Williams: The $280,000 just for view is held, gaining an interest, and at the end of 5 years, then you’ve passed through this period of time and then the visa’s, then your passport’s available to you, permanent residency in Europe.

Joe Pyke: Exactly, and your initial investment is returned to you. So, it’s case of just parking your money for that period of time. You know, there’s different levels of Golden Visa, I mean, it’s always the same outcome, but the entry levels, 280,000, and that is because it’s in a low-density area. The building is over 30 years old. You know, if you want something in the sensor list, well then you going to have to pay 350.
If you want something you physically own and is yours, you have to pay 500. There’s different options and it will all be down to the individual, but the end goal is exactly the same. You end up with either a permanent residency or a passport, whichever you choose.

Scott Williams: Okay. So just thinking about this, the $500,000 because you want to buy a place there, during the 5 or 6-year period of time that this takes, you get to spend as much time in Portugal as you wish.

Joe Pyke: Exactly.

Jonathan Robinson: You do? Okay.

Joe Pyke: You can spend 10 months of the year there.

Scott Williams: All right. So, this is just part of the process of making a deeper commitment to having ownership and property in Europe. This is how you do it.

Joe Pyke: Exactly. I mean, this is what we call the D7. So, if an American wanted to stay in Portugal and they said, “Look, I’m going to move there,” you can go in what’s called the D7, which is a cheaper visa. However, the D7 Visa would require you to stay there for a minimum of six months every year without fail. It’s like you can’t go three years in and then decide. Hey, I’m not going to stay there for six months. You have to stay there for six months to qualify for that visa. The Golden Visa gives you free rein. You can stay as long or as little as you want. That’s the beauty of the Golden Visa.

Jonathan Robinson: That’s a good specific knowledge to know about. What are you going to say Scott?

Scott Williams: Right, I think that this is really the, you can’t just dabble in wanting to go to Portugal. You have to make a commitment of funds, along with your purchase of a property there. So, these are the things that our listeners need to know.

Joe Pyke: Yeah, exactly.

Jonathan Robinson: That’s why there are people like Joe to explain it to us.

Joe Pyke: Well, I hope you got enough information, guys. You know, thank you for having me on here. I really do appreciate it.

Scott Williams: All right, well, I think for our listeners, if they’re interested in exploring the property market, they should contact me Scott at scottwilliams.com, and we’ll put you in contact with Joe. It’s the first thing I should think of, for our listeners.

Jonathan Robinson: Very informative Joe. I wasn’t interested before, but now Portugal’s looking pretty good. We appreciate you, your knowledge and your willingness to share.

Joe Pyke: It actually happens to everybody, I speak to. They go, “What? Portugal? I never thought about it before.” And then by the end of, it’s like, “Do you have a card?”

Jonathan Robinson: Yeah, exactly, exactly. I can understand. So, join us next time for more information and exciting explorations on Sweet Home Santa Barbara.

Scott Williams: Thank you for listening. Please subscribe to our podcast on your favorite app. If you know someone preparing to sell their home, please tell them about the podcast. Visit scottwilliams.com to contact me and download the two free e-booklets, “Is my house saleable now?” and “How not to buy a money pit.” Thank you for listening.

[END]