Tick, Tock: Portugal Golden Visa Before the Changes – Fund or Property?
In the first nine months of 2021, hundreds of investors from all over the world have completed their Portugal Golden Visa applications ahead of the changes that will take effect in January 2022. While some have invested in real estate, others preferred to put their money into an investment fund. Both investment types offer a set of benefits and drawbacks.
Every day we speak to countless prospective investors who ask us “Which one is better for me?”
As an independent investment advisor, my responsibility is to show them both sides of the coin. As the rules and investment amounts are changing in a few months, it’s more important than ever to weigh the pros and cons in an objective manner. Let’s lay all the cards on the table before you make a commitment.
Investing in a Fund to Pay Less in Fees
Expenses associated with real estate investment include transfer fees, stamp duty, and title transfer, among others. You’ll also need to spare a budget for furniture, decorations, and a variety of other unforeseen expenses. However, if you have the means, all you have to pay for a fund subscription is €350,000. Investing in a fund is much less expensive than purchasing real estate in terms of acquisition costs.
As a side note, the minimum investment amount for investment funds will increase to €500,000 on January 1, 2022. If you want to subscribe to a fund with the current rules, you’d better act fast.
Investment Fund: Tax-Efficient Route
Taxes are always a part of a real estate acquisition, no matter where you are. Property purchases in Portugal are subject to the IMT transfer tax, which is around 6%. You’ll also have to pay a 0.8% stamp duty and 0.3-0.5% in annual municipal taxes. Fortunately, there are few to no tax implications when you subscribe to a fund.
We’ve created a graph below that shows the average costs for both methods. For the real estate purchase, we’ve just included the €350,000 and €500,000 alternatives. The percentages of some taxes will be lower if you use the €280,000 path.
|Real Estate (Subp. 3)||Real Estate (Subp. 4)||Investment Fund|
|IMT Transfer Tax||4.58%||6.5%||0%|
|Performance Fee||0%||0%||30% of the profit*|
|Management Fees||0%||0%||1.5% annually**|
|Approximate Total (Exit Fees, Management Fee, or Legal Fees aren’t included)||€369,840||€537,500||€350,000|
* Performance fee will vary depending on the fund you choose.
** Management fees will differ on the fund, too. However, it’s normally between 1%-2% of the invested amount per year.
*** Legal fees will change depending on the law firm. The number of family members will affect the fees, too. Usually, the legal fees for both investment funds and property acquisition are the same.
Also, note that the government fees aren’t included in this table. But, they remain the same regardless of your choice of investment type.
Fund Subscription: Hassle-Free Investment
For many investors on a tight timeline, this is a significant motivator. They make the investment and hand it over to the fund manager to manage. Simple. Real estate investment, on the other hand, comes with a slew of duties, including renovations, maintenance, and finding a tenant, to name a few. This is why, if you want to save time and effort, a fund subscription may be more convenient.
Fund Investment: Quicker Route
With the upcoming modifications to the Portugal Golden Visa, it’s more crucial than ever to get started on your application as soon as possible. The process of purchasing real estate is normally longer because you’ll also need time for house hunting. The decision can be made more rapidly with the investment fund because no physical inspection is required and the due diligence can be done remotely.
Real Estate Acquisition: More Control
Real estate acquisition costs more than a fund subscription. Costs, on the other hand, aren’t a deal-breaker for some investors who desire complete control over their money. A real estate investment may be a better alternative for you if you want to have complete control over your investment. You can choose to rent out or reside in the property once you’ve purchased it. However, you’re dependent on your fund manager when you subscribe to a fund.
No KYC Requirement for Real Estate Purchases
When you subscribe to a fund, you must go through the Know-Your-Client (KYC) process, which requires you to submit proof of income as well as the source of that revenue. This is not, however, required in the real estate purchasing procedure. Another reason why some investors choose real estate over the KYC procedure is to avoid paperwork.
Real Estate Acquisition: More Liquid
In most funds, subscribers can sell their participation units to each other. However, because the funds are timed to coincide with the Golden Visa application deadline, it’s not easy to find demand for resale. This is why fund investments are illiquid until the fund is dissolved by your fund manager. If you take the real estate route, you can quickly liquidate your investment as long as you’re ready to risk losing your Golden Visa. Once you have obtained Portuguese citizenship or permanent residency, you have complete control over when and how you sell your home.
Investment Fund VS. Real Estate: Which Is Better?
This very much depends on your personal needs, investment criteria, and risk tolerance. If you’re not planning on relocating to Portugal and merely are looking for a side income, real estate acquisition could be a good option because it generates rental income. An investment fund, on the other hand, might be a better choice if you want higher returns that expand over time. Furthermore, as I just indicated, in order to take advantage of the current rules, you must make a decision soon, which is easier to do with investment funds.
About Get Golden Visa
Get Golden Visa is a bespoke investment advisory firm. We provide end-to-end solutions on residence and citizenship by investment programs in numerous countries worldwide.
Our Portuguese office has licensed investment professionals who can assist you in making the right investment. Our key account managers will then guide you through the entire application process, ensuring that all of the moving parts are running smoothly.
Charles Taylor Harris / Executive Director at Get Golden Visa
Interested in contributing a sponsored feature? Email us on firstname.lastname@example.org and see all our promotional options here.
Charles Taylor Harris is an executive director at Get Golden Visa – a startup focusing on providing a transparent journey to those looking for a residency or citizenship by investment.