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Key Takeaways
Portugal is among the top destinations for hotel investment due to the growing tourism industry in the country, strong economy and high quality of life in the country.
Some benefits that hotel investors in Portugal enjoy include cash and tax incentives from the government and a steady source of income.
For investors interested in acquiring and operating hotel projects in Portugal some common financing options include bank loans, crowdfunding platforms and private equity.
Get started on your hotel investment journey in Portugal today through Bay Street's Alt Path Hotel Fund. For more information on the fund, schedule a call with our investment experts today.
Disclaimer
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on investing here.
Invest with Bay Street
Are you an investor looking to venture into the Portugal hotel market? Bay Street represents one of the forty approved funds for Golden Visa applications in Portugal. The firm currently owns and operates properties in Los Angeles and Lake Tahoe in the US, and is currently working on boutique hotel projects in Portugal through its Alt Path Hotel Fund. These projects have an estimated IRR of 18.87% and Bay Street has managed to secure 45-55% cash back incentives from the Portuguese government.
In addition, our qualified team of investment professionals can help investors looking for a residence permit in Portugal to navigate the Portugal Golden Visa process. Whether you need legal assistance or investment advice, our team will guide you through the Golden Visa investment process for the Portugal Golden Visa program.
Now is the best time to diversify your investments and venture into the growing Portugal hotel industry.
Book a call with our team and start your Portugal Golden Visa journey today!
Why Invest in the Portugal Hotel Industry?
2023 reports indicate that Portugal's hospitality market contributed 40+ billion Euros to the economy. This accounts for almost 16% of the country's GDP. Here are some reasons why Portugal is a great market for hotel investing.
Growing tourism industry
The tourism industry in Portugal has been experiencing exponential growth and in 2023 it is reported that 30+ million tourists visited the country. As a whole, the industry generated roughly €25 billion in revenue. The growth in tourism activity has created increased demand for quality accommodation among visitors. This provides a great opportunity for individuals to invest in hotels and make significant profits.
High quality life and favorable climate
Portugal is well known for its warm climate, beautiful beaches and vibrant culture. This makes it an appealing destination for tourists to visit the country all year round, meaning that there is a constant need for quality accommodation in different parts of the country. As a growing tourist market, investors can take advantage of the thriving tourism industry and invest in the hospitality industry for consistent returns.
Strong economy
Among the 27 countries in the European Union, Portugal was ranked the fifth fastest-growing economy in 2023. Its GDP growth rate was 2.6% and this makes it a great destination for investors looking to invest in the hotel sector. The value of property continues to grow in prime locations and with the tax incentives provided by the Portuguese government, foreign investors can venture into hotel property investment and benefit from the country's stable economy and growth.
Strategic location
Due to its strategic geographical location, Portugal acts as a gateway to Europe and is well positioned as a connection point among different continents. The country's proper infrastructure and well developed transport system, makes it an attractive holiday destination for tourists all over the world. This is a great opportunity that hotel investors can take advantage of and expand their business in different areas in the country.
Diverse hotel investment opportunities
Investors can take advantage of different investment opportunities within the hotel industry. From building and operating a luxury hotel to investing in a hotel fund, there are various real estate investment options for investors depending on their budget and preference. For investors looking to acquire a Portugal Golden Visa, they can make a minimum investment of €500,000 in a venture capital or private equity fund that is focused on hotel investing.
Check out Bay Street's Alt Path Hotel Fund for an opportunity to invest for a Portugal Golden Visa.
Factors to Consider When Investing in Hotels in Portugal
In 2023, Portugal was named the best tourist destination in Europe by World Travel Awards. With millions of tourists visiting the country every year, investors can take advantage and provide quality accommodation options to these guests ever year. Here are some key factors to consider when investing in hotels in Portugal.
Location of the property and tourism demand
As with most real estate investments, the location where you set up your hotel project can directly influence the success of your business. Before investing in a hotel, be sure to check that the area is a prime tourist destination as this can help you determine how much demand there is for accommodation. In Portugal, some of the top tourist destinations that hotel investors can consider setting up hotel projects include Lisbon, Porto, Algarve and Azores.
Do proper market research
Before making any investment decisions, it is important for investors to conduct thorough market research and establish the best areas in Portugal to set up hotels. Some important factors to consider include current market trends, occupancy rates, average daily rates and revenue per available room (RevPAR) to establish potential profitability of the hotel investments. In addition, hotel investors can also consider working with consultants who have specialized in the Portuguese hospitality market.
Conduct financial analysis to determine potential investment returns
When looking to make a hotel investment in Portugal, it is essential that you are clear on what your investment budget is, the potential returns and if this type of investment aligns with your long term goals. Calculate to determine how much you need for acquisition of the property, operating and furnishing expenses. This will help you determine how much investment capital you need and the property value when it comes to cost evaluation. If you are buying a hotel from a previous owner, it is important that you know you might be required to pay capital gains tax and transfer tax.
Some key performance indicators that you can use to determine performance of the hotel are net operating income and internal rate of return.
Hotel management structure
In terms of how the hotel will be run, investors need to decide if the hotel will be self managed, operated by a hotel management company or be part of a franchise. There are pros and cons of each management style and investors should pick the best one based on their level of expertise and investment needs.
Developing a unique brand and having a clear selling point will help you differentiate yourself from other properties in Portugal.
Property type and size
Depending on the type of customer segment that you're targeting in Portugal, investors can choose to either invest in boutique hotels, luxury resorts or budget hotels. Whichever property that you choose to go with, ensure that it is in line with your budget and long term investment goals.
Sustainability practices
As the needs and preferences of modern travelers continue to evolve, an aspect that is becoming increasingly important to travelers is environmental consciousness. Many travelers prefer to stay at hotels that are committed to sustainability practices such as use of renewable energy sources and water conservation. As an hotel investor in Portugal, it is important that you consider implementing eco-friendly practices in order to stay competitive.
Financing Options for Hotel Investors
Setting up a new hotel in Portugal requires significant initial capital as property prices are up due to increased tourist activity that has caused a surge in demand for quality accommodation. Here are some common financing options for hotel investors.
Bank loans
A common way that investors finance their hotel projects is through bank loans. In order for you to secure a bank loan, a strong credit history and proof of collateral is required. It is also essential that you have a comprehensive business plan as this may assist you in your loan application. Bank loans may appeal to many investors because of the lower interest rates and repayment terms offered by banking institutions.
Crowdfunding platforms
Crowdfunding platforms have become a popular way for hotel investors to raise money for hotel projects. Through these platforms, a large number of individuals raise money to finance hotel projects and in return, they get equity or rewards in the hotel.
Private equity
Another option for financing hotel projects is by working with private investors who can invest substantial amounts in exchange for equity ownership or a share of future profits. Investors interested in private equity usually seek higher returns and so they may be willing to take on more risk as compared to traditional lenders.
Government incentives
The Portuguese government offers hotel investors cash incentives and subsidies to encourage hotel development projects in the nation. Investors can now invest with Bay Street and enjoy 45-55% cash-back incentive. To learn more about our Alt Path Hotel Fund, get in touch with our team today.
Commercial real estate loans
Another way in which investors can secure funding for large hotel projects is through commercial real estate loans. Investors can use these loans to buy land, construct buildings and get long term financing.
Pros of Investing in Hotels
Some advantages of investing in hotels include:
Hotels can be a great source of steady income for investors as they generate revenue through different avenues like room bookings and conference and event spaces.
For individuals who enjoy traveling, investing in a hotel can grant them ability to use hotel amenities during vacations at lower or no cost at all, while still making profits from the property.
Hotel investments can also help with diversification within a real estate portfolio. This can help with overall risk management.
Hotels make for relatively resilient investments as compared to other assets because despite changes in economic conditions, people still continue to travel for business and leisure.
In terms of management, investors can choose to operate the hotel themselves or lease it to a management company. This can provide flexibility to investors, depending on their preferred management style.
Similar to other real estate investments, hotels offer investors tax advantages such as depreciation deductions and mortgage interest deductions.
Cons of Investing in Hotels
Some downsides of investing in hotels include:
Building or buying a hotel is a capital intensive venture that requires a substantial upfront capital investment. Some of the costs involved with hotel investing include buying land, construction costs and furnishing the space.
Generally, hotels that are located in tourist destinations heavily depend on tourist activity to make profit. Therefore, changes in travel patterns or pandemics and natural disasters might lead to lower occupancy and less revenue generation.
The hotel industry is very sensitive to changes in the broader economy. That means that during economic recessions or pandemics, hotels are very likely to experience decreased occupancy rates which result to lower revenues.
For hotels to remain competitive, they often require renovations after certain time periods, in order to maintain quality standards and meet the evolving needs of guests. Renovating a hotel property can be capital-intensive and may cause disruptions in daily operations.
Due to disruptive innovations in the hospitality industry like the rise of vacation rental platforms like Airbnb, hotels must invest in the latest technology and marketing in order to remain competitive.
Get Started on Your Hotel Investment Journey in Portugal Today!
With the thriving tourism industry in Portugal, the hotel industry continues to grow as a result of growing demand for quality accommodation options. Investors can reap major benefits by having a holistic understanding of the hotel investment landscape in Portugal and strategically positioning their investments in high demand locations.
Bay Street's Alt Path hotel fund provides both seasoned and first time hotel investors an opportunity to invest in the Portugal market for long term success.
For additional insights on hotel investing in Portugal, read more here.
Bay Street Capital Holdings
Bay Street Capital Holdings is an independent investment advisory and wealth management firm. The firm's focus is on hotel investing and is keen to grow its client portfolios and minimize overall risk.
For hotel investors looking to venture into the Portugal hotel industry, schedule a call with our experts today to learn more about our Alt Path hotel fund.
Sources
https://irgroup.pt/blog/481-why-is-investing-in-hotels-in-portugal-an-unmissable-opportunity
https://www.baystreetcapitalholdings.com/investment-in-hotels
