Sabine Peters / Unsplash
Sabine Peters / Unsplash

Renting out your holiday home the rest of the year while you are not using it can be an additional source of income. The Portuguese real estate sector is currently very dynamic, and demand is on the rise, often exceeding supply so that higher rents can be charged. But in this rental equation, not everything is profit. There are also some expenses associated with it that you should consider.

If you have a property in Portugal that you wish to rent out or if you're thinking of investing in the rental property market, the best thing to do is find out about the costs you have to face when it comes to being a landlord. idealista/news has prepared this article in collaboration with Doutor Finanças to tell you all about the costs you need to consider before renting out your property in Portugal.

Stamp Duty and IMI

For each rental contract you have to pay Stamp Duty (Imposto de Selo). This represents 10% of one rental payment. The amount is to be paid to the Portuguese Tax Authority after the registration of the contract.

The Municipal Property Tax (Imposto Municipal sobre Imóveis - IMI), which corresponds to the multiplication of the tax rate stipulated for the current year by the Taxable Asset Value of the property, is to be paid annually. 

If the tax value of the property (Valor Patrimonial Tributário – VPT) or the sum of other properties that you have is higher than 600.000 euros, you should also take into account the additional IMI (AIMI). This is an additional annual tax, which became known as the "Mortágua tax". If the VPT of the property (or several properties together) is between 600.000 and 1 million euros, the AIMI is 0.7%. Between 1 and 2 million you must pay 1%. And if it exceeds 2 million, the AIMI is 1.5%.  

IRS Income tax

Income obtained through leasing is taxed according to the duration of the contract:

  • Less than 2 years: 28%;
  • From 2 to 5 years: 26%;
  • From 5 to 10 years: 23%;
  • From 10 to 20 years: 14%;
  • More than 20 years: 10%. 

Maintenance costs

Although it is not a formalized expense, the maintenance of the property is an expense that you should not forget about. From small reparations to renovations, there may always be some need for intervention which, ultimately, is the responsibility of the owner. 

Condominium fees

If the property is an apartment or a dwelling in a gated community, the list of expenses with the lease must also include the condominium fees. In fact, it is a cost that you would always have as a landlord, even without having the property rented.

Multi-risk Insurance

A multi-risk insurance, also known as household insurance, has as its main function to offer a set of coverages that protect the damage to your property and its contents.

This insurance is mandatory by law if the house is a separate fraction in a building divided into horizontal property. Although the mandatory coverages are only the fire and nature elements, we recommend that you analyse other coverages that can protect you against possible accidents in the house.

Agency fees

If you want to rent out your property with the help of a real estate agent, because it’s easier and faster, don’t forget that there is always a commission involved. Consider if it doesn't pay to handle the process yourself. 

Evictions  

This is a cost that no one wants to have but you should always consider a worst-case scenario. There are 2 steps that are determined by the value of the special eviction procedure (i.e., the sum of the value of two and a half years' income and the value of the rents in debt): 

  • value of the special eviction procedure was equal to or less than 30,000 euros: 25.50 euros
  • value of the special eviction procedure was over 30,000 euros: 51 euros

Mortage costs 

If you used a mortgage to buy the house you now want to rent out, you have to include all the associated expenses in these costs: the monthly fees, interests, life insurance and multi-risk insurance. 

Costs for tenants

For tenants, the only additional expense that may exist in addition to the rent itself is the payment of a rental deposit. Article 1076 of the Portuguese Civil Code provides that the landlord may ask for a deposit of up to two months of the rent when signing the contract.