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Hey all!
I work on the private equity/private debt side of real estate here in the States and figured I'd see if anyone has had any exposure to that in their real estate-related activities in Portugal. The U.S. real estate market is certainly different from almost any other across the world, though I feel like, barring any regulation that would hamper it, there would still be a need for these financing layers for investors looking to add value via renovation or create value via new construction.
I know I'll probably be able to answer a lot of these better once I'm immersed in things in Portugal, but if anyone has some insight into the below, I'd super appreciate having a chat.
- Does "hard money" exist in Portugal? Hard money loans are essentially very high-interest, short term loans with very low qualification barriers leveraged frequently by flippers.
- Does "private money" exist. in Portugal? Private money was essentially created when institutions realized that they could do what hard money was doing at less interest, but still more interest than typical banks and without the mortgage qualification barriers.
Essentially, are there any institutions and/or lenders in Portugal who lend at higher interest rates than the banks, who base their lending decisions primarily on the opportunity (ie. resale potential) of a property rather than the borrower?
- Is joint-venture common in Portugal? In real estate here in the states, "syndication" is fairly common. You'll have a "sponsor" of the project who is the main person responsible for executing the project, and several "passive" participants who contributed toward equity and cost. They'll split proceeds at the end.
I've found that banks do offer rehab 'mortgages' - you can typically do 90% rehab financing if you already own the property outright, or 70% of prop + rehab combined, with principal payments being deferred for two years. So there's that. But for reference, private lenders here are lending sometimes up to 90% LTC @ 8% interest.
I know these are niche, but perhaps someone has some insight as to how things work over there.
I'd also be happy to talk to anyone interested in learning more about this side of real estate investing, if you have such a curiosity. 😀
Hi Alex,
You are going to find Portugal quite a bit different then the US. Maybe we both can get educated in the process but here is what I know.
I am not currently aware of any hard money or private money lending as we had in the US.
We are following an effort for a something along the lines of a joint venture here. Check out the entire series on this.
Yes, banks here do offer rehab mortgages, but it is more nuanced than the states. I think it was addressed in this link.
Do share anything you find but it seems like the banks here are quite a bit more risk averse then the US.
@jonesdn2020 Thanks, Trevor. I imagine joint venture is fairly doable - as it is in the States. Create an entity of which Persons X, Y, and Z are shareholders, then purchase the property using that entity. Upon sale, pay out the proceeds per the stakes and dissolve the company.
One wrinkle in the JV I think is that you can only get a mortgage for ~50% purchase if I remember correctly. So that increases your equity raise.
I've found various things re: lending. Any loan offered between individuals over 25k EUR requires a public deed, and there are restrictions on the interest rates.
https://www.nvalores.pt/emprestar-dinheiro/
This would seem to open the door for the possibility of private lending to exist, and the interest rate ceiling provides enough room for yields. Need to figure out if:
- Companies can lend
- Property can be held as collateral (ie. that the person providing the debt can assume what would be the equivalent of First lien position)
I can't imagine there aren't one-off private equity type firms who engage in some kind of debt fund type behavior.
Will keep you posted on what I find out. 😎
One wrinkle in the JV I think is that you can only get a mortgage for ~50% purchase if I remember correctly. So that increases your equity raise.
That is a big wrinkle that we found. The equity required to play ball makes the deals less attractive. You have to also consider the project timelines here. They are quadruple or more of a project in the US. Thus, eating into profit.
The content I sent you links to also addresses the timelines for completing a project in Lisbon versus Porto. Lisbon takes almost twice the time which really requires some long-term decent funding.
@jonesdn2020 I suppose that you could structure JV so that individuals Y and Z loan money to a single individual at a certain rate, with a balloon payment that triggers at asset disposition. Essentially hard money lending by individuals Y and Z.
Grossly oversimplified scenario:
Purchase: 500,000 EUR
Rehab: 100,000 EUR
Loan: 300,000 EUR @ 5% ($37,500 in interest)
Term: 30 Months
Individual X: 50,000 EUR
Individual Y: 125,000 EUR @ 15% annual ($46,900 in interest)
Individual Z: 125,000 EUR @ 15% annual ($46,900 in interest)
Sale: 900,000 EUR
Loan Payback: 337,500 EUR
Equity Inv Payback: 250,000 EUR
Equity Int Balloons: 93,800 EUR
Remaining Profit: 218,700 EUR
That's probably not doable though, since I'm getting the feeling that loans of that amount would require public deeds, which would then become visible to the banks provisioning the mortgage.
Also individuals Y and Z would have zero recourse if the project goes belly up and they can get 15% yield far less risky elsewhere.
I'll have a look at those videos you sent. 🙌
