The island of Madeira is one of the most popular destinations to start investing in Europe. Because it is a safe place against crime and the pandemic. In addition to giving visitors beautiful views and other views that demonstrate the charm of this island. Therefore, in this article I show you 10 tips for Investing in Properties on Madeira Island
1- Analyze taxes and other costs before investing in properties on Madeira Island
Before searching for properties on Madeira Island, it is important to take into account the costs that you may be subject to. Especially the municipal tax on property transfers (IMT).
The landlord will have other additional costs, such as the condominium, property insurance, IMI, and unforeseen events, such as maintenance or works expenses.
On the other hand, it can reduce a large part of these conditions to the building's income before they are quoted. In other words, the total of these conditions is added to the annual amount of rent received and only then is the tax rate applied.
In any case, it is only worth buying to let if you have a profit of more than 4%.
2- Calculate prices
At the same time, it is important to calculate the value of the property and divide it by the total rent you will receive during a year. This number shows the time it will take to recover the investment.
It will be a good investment if it is less than 15. If it is greater than 20, it is not advisable to invest in the property. The longer the term, the lower the annual profit gained from the lease
It is also necessary to keep in mind the risks that may arise in your investment. After all, you can prevent something from happening on one of your properties.
At the same time, always check the insurance certificates you take out for your properties, such as fire or flood insurance. Furthermore, you should carry out a detailed analysis of the property before investing, as it may already have risks at that time.
3- Search for information about tax benefits
When investing with a traditional type, for your own permanent home, you will have tax benefits. It is enough to have a contract period equal to or greater than 2 years to have, in the first year, 2% less tax payable on income.
Furthermore, with each renewal, for the same period, it will decrease by 2%, up to a limit of 14%.
On the other hand, contracts equal to or greater than five years and less than ten years start with paying 5% less IRS. Anyone who has a contract lasting 10 years or more and less than 20 years is entitled, in the first year, to the same taxation. There is also a maximum income bracket, in which the IRS rate is 10%, for lease contracts longer than 20 years.
4- Choose the location of the property carefully
To invest in a property on Madeira Island, based on its structure and long-term thinking. It is necessary to understand whether or not it is worth buying a house to rent.
5- Be careful with contracts
Furthermore, there are some precautions to take when choosing a resident for your property on the island of Madeira, one of which is the contract. As a landlord, you must give the resident a period of residence, and indicate the period of possible renewal for periods equal to the initial period or others.
Contracts signed from February 13, 2019 and with a duration of less than three years are automatically renewed for three years, if nothing has been decided otherwise. In other words, if the contract is for two years, either due to a different decision or if the landlord needs the house for himself or his children, it is renewed for three years.
In addition to the guarantee, which, as a rule, is equivalent to one month's rent and, in principle, is returned at the end of the contract. You can try to reach an agreement on rent advances. In this sense, the value cannot be greater than three months.
Get more information about contracts.
6- Choose good partners
Be that as it may, another golden tip is to choose good partners for your business. Be it brokers, real estate agents, lawyers, accountants, property managers and people who may be involved. Their cost will always be positive compared to the profit they will give or prevent from losing.
7- Filter residents to pay rent
Eventually, another tip is to pay attention to residents’ financial capacity to pay rent. It is not guaranteed that you will receive them, but it is recommended to request proof of income from the residents and guarantor, if it is necessary to add more guarantees to the process.
Finally, it is extremely important not to forget to include a rent update clause. Otherwise, the income will be updated according to the income update coefficient.
8- Is renting rooms to students worth it?
However, compared to traditional leasing, renting rooms to students, filling the house with young people may not be as good as having a contract with a resident looking for a permanent property.
What are the pros and cons?
If you are willing to rent a house to students, it is important to take some assumptions into account. In addition to concerns due to the pandemic, a school year is not a complete year.
Unlike what happens in traditional leasing, the owner is not entitled to tax benefits on income (monthly fee paid by the student). In other words, the tax rate is always 28%.
On the other hand, if managing a tenant is hard work, imagine two, three or four students.
9- The ideal place for students
From the same point of view, in this case the location is also an issue that needs attention. It is necessary to take into account that student demand is greater in areas close to schools or colleges. Which means that it is important to evaluate the competition, whether it is university properties or private offers via internet portals.
Therefore, it is best to choose a place that has a lot of demand where a sale can be made at any time, if necessary. Therefore, it is worth investing a little more, if necessary, for a property that can be rented or sold quickly.
Therefore, in the long term, it is expected that the greater the number of inhabitants in the house, the greater the maintenance requirements it must have.
10-Be patient and plan your business for the long term
Finally, it is worth remembering that real estate investments require a lot of patience and it is necessary to think long term. The profit from real estate value takes time to return and is dependent on external market factors, which is why this factor must always be viewed carefully and with great care.
In short, in this article I showed very important tips for investing in Properties on Madeira Island. In addition to being excellent in terms of the real estate market, as it is a tourist island it is in great demand, whether to spend holidays or to live as they are enchanted by the charms of this island of flowers.
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