When planning to rent or buy property anywhere in the world, you are potentially susceptible to possible frauds and BIG red flags in the real estate market. Unfortunately, Portugal is no different and with the country currently being a hotspot for foreign real estate investment, chances of fraud also tend to increase.
Today we’ll cover some red flags you should be aware of when considering renting or buying a property in Portugal.
Rentals
1. ALOJAMENTO LOCAL (AL) WITHOUT LICENSING
As you might know, in Portugal we have long term rentals and holiday rentals (short term). For holiday rentals, it is mandatory to have a license which allows renting as a business model. Renting as a business means that contracts are not necessary for short term stays, only a receipt that you paid for the stay, exactly like a Hotel. It is possible to have contracts under an AL, but usually it’s not profitable for the business and might not even be possible during high season.
Because there is a lot of people renting AL without “under the table” aka without this business license, you should always check their legitimacy on the Portal of Verification of AL ... This leads us to point 2.
2. NEVER PAY BEFORE CHECKING THE LICENSE OR HAVING A CONTRACT
Like I mentioned before, make sure you check the AL on the Portal linked above and always request a receipt for your stay. With non-registered contracts, however, although not much of a risk for you but a problem for the landlord it’s definitely a red flag you should keep an eye out for. Like AL, contracts for long term stays can also go “under the table”, which means not registering the lease contract because some landlords don’t want to pay the taxes. This can lead to many complications for the landlord because if you rent a property and you have a contract that is not registered, you can denounce it and you will not be kicked out. The landlord ends up having to pay a very heavy fine and have to register the contract anyway.
There is also the stamp tax which is a percentage of the contract value that the landlord has to pay for each contract registered. This is one of the reasons why long rentals cannot do short term contracts - let’s say you want to rent a house for 1500€ for a month. For a property not registered as AL they would have to pay a stamp tax of 150€ plus the regular fees for only a month. That stamp tax is per contract, so they pay exactly the same whether that contract lasts a month or 10 years. The Portuguese Law states that the contracts need to be 3 months or more. If they are less than 3 months, you need to have a clause stating that it is for holiday or business purposes.
3. NEVER RENT BEFORE CHECKING THE PROPERTY
Sometimes you will find listings online that look amazing but reality can be very different. Unfortunately, this kind of situation is very frequent. Either the conditions aren’t as good as presented and/or they omit certain aspects of the property just to make the advertisement more appealing.
Another issue with this is that because there is a lot of demand, especially in bigger cities, landlords can take their pick and there is always someone interested in taking in not so good conditions by whatever price they advertise. In most cases, the conditions will not be worth the price presented.
So always visit in person, or have someone you trust do the visit for you, and check if the conditions are the same as listed and if it’s worth the price asked.
4. MANAGE EXPECTATIONS Speaking of conditions of the property, one thing to be aware of if you come from much more regulated rental market countries (like the US), is that conditions here tend to be very poor compared to the ones in your country. This is a big problem. There is a big gap between the higher end and foreigner market and the local market - Apartments that are truly new and with great conditions like air conditioning, good isolation, good furniture, etc are already directed to the luxury and foreigner market so they end up being much more expensive and unaffordable to the locals.
5. “BIDDING WARS”
I mentioned in point 3 that landlords can take their pick, unfortunately it goes much further than that. Some landlords know that there is a lot of demand in the market right now especially in Lisbon and Porto, and try to take advantage of it by pushing you into “bidding wars”, which is basically pushing you into making a deposit while threatening to give the rental to someone else if you don’t. Now, this isn’t illegal or fraudulent behavior per se, but we do not recommend engaging in these “bidding wars” as they are a telltale sign of a red flag by the landlord. If you find yourself in this situation, do not make any deposit to secure the property before having a contract or at least checking out the property yourself.
6. DO NOT PAY TOO MUCH IN ADVANCE
The standard is paying one or two months ahead plus a security deposit, which can be equivalent to one or two months as well. Ideally, you shouldn’t pay more than 4 months rent when making a contract. From a landlord standpoint, because of the high demand and the increase of foreigner tenants, landlords want to have as many guarantees as possible that the rent is going to be paid on time. Nowadays, they often request you present a guarantor, receipts of monthly income, etc.
Although we don’t recommend paying more 4 months ahead, we have had clients who are willing to accept the risk because they really want the place. The problem that can arise with that is that if you leave before the months you paid, it will be very hard to get your money back. In this situation, we also don’t advise you to go to court as courts in Portugal are extremely slow in dealing with processes. Instead, we advise you to sort it out with the landlord directly.
7. ILLEGAL SUBLETS
This means other tenants subletting to other people illegally. This is fairly hard to detect if there is a contract, which will not be legal because they are not the owners of the rental. However, more often than not, those subletting illegally obviously do not want a contract. In every legal and legitimate contract, you will find a registry number and the reference number of the property. If these numbers are not in there, that is something to be concerned about. You can check for this for the Certidão Permanente which is a state emitted document where it will say the area, the typology, when it was built and who owns it.
Want to learn more on scams?
Then you can read our next article about Buying : Common Scams & Red flags
Conclusion
These red flags and oversights are something that if missed can cost you a lot of money! That’s why we always stress the importance of hiring legal professionals to assist you both with rental, buying and investing processes.
With Savvy Cat Realty we have a strict business model when it comes to spotting these red flags and scams and we work closely with our legal team to make sure our clients are not being scammed, never losing unnecessary money or simply just to avoid all the headaches.
We work for YOU and our goal is to be your trustworthy right hand in Portugal.
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Hope this article was helpful, any questions you might have feel free to contact us! We are always available at contact@savvycatrealty.com if you need any assistance ;)