The real estate market

We're not in Kansas anymore (70)

It’s time to move forward on buying property in Portugal. Our lease runs out in April, 2024 so we don’t have to rush into anything. But if we’re looking to get in on a building that’s just starting the remodeling process, it could easily be more than a year before it’s ready for move-in.

We’ve made our lists of “deal-breakers” and “nice-to-haves.” We’ve visited Braga. And re-visited Braga. We’ve walked neighborhoods in Lisbon. And spent five minutes in Coimbra, Porto, Espinho, and Matosinhos. And returned to Braga. Again.

Now we must face the reality of the decisions we’ve made. Here’s what we’re up against.

As we left St. Louis, we sold this house:

View from the sidewalk in front of our house.

We’d owned it for five years and spent a lot of time, money, and sweat equity turning it into turning a place we thought we would live in until we died. It was 1616 square-feet on 1/8 of an acre with four bedrooms, two full baths, a garage, solar panels (electric bill? $15/month), and a small water feature that the birds frequented. We could let Josie out a side door into a fenced-in backyard where she could run around and/or lie in the sun. We loved that house and the neighborhood it was in.

Sensing a hot real estate market, we moved quickly to sell and listed it for $369,900. After three days of private showings around an open house, our realtor fielded eight serious offers, most of which included escalation clauses that combined to push the final sale price to $440,000. Cash. With no inspection or appraisal riders. We were pleased.

Today, we are renting a 56 square-meter (that’s 603 square-feet) apartment with one bedroom, one bathroom and … an elevator. Which is nice. We definitely like the elevator. (Click here for a more thorough tour of the apartment.)

View from the sidewalk across the street from our apartment.

We have an amazing real estate agent. We said, “Hey Heather, we’re looking for something to give us a sense of exactly what the market in Lisbon is like these days. We know our apartment. What would be a reasonable asking price if it were to go up for sale now?” She did a workup and her number made our blood run cold. A “fair market price” for this unit would be 532,883€.

We are well aware that we live in possibly the most expensive area of Lisbon, the most expensive city in Portugal, and apparently the most expensive capital city in southern Europe. Yes, there are cheaper neighborhoods here and we can certainly end up in one of them - we don’t really have a lot of choice on that, actually.

There’s also no question that moving to Braga would be less expensive than staying in Lisbon. We just started from scratch - building lives, friendships, and routines - eight months ago, though, and aren’t eager to do so again. We’re also concerned that the historic center, the area of Braga we love, may be too small to have a sufficient number of apartments that match our needs. Moving to Braga, if we can do it at all, would be harder on many levels but easier on the wallet.

Further complicating our situation is that a significant percentage of our assets are tied up in IRAs and other retirement accounts that we are too young to access without paying significant tax penalties. (We’ve been diligent about saving for retirement. We just weren’t expecting retirement to come so soon.) We need to budget living expenses to last until Amy turns 59.5. An emergency fund would be nice. Plus, we’ll need to actually furnish any apartment we buy so there will be some one-time costs associated with that (our current rental came fully furnished so we’ll need a few big ticket items like a bed, dining room furniture, couch, hot tub, sauna, infinity pool, ping pong table, bowling alley (two lanes ought to do it, right?), movie theater (8 seats? Maybe 6. We’re on a budget.), … ). We also need to factor in the exchange rate: today, we’ll lose roughly 6 out of every 100 dollars we transfer to euros. And there will be tax consequences for selling some of our mutual funds so we’ll need to pay that piper next year. Ordinarily, we’d take out a mortgage to cover anything we can’t afford to pay cash for now. The fact that we’ve retired early and have no income to report will make getting that mortgage more challenging.

We know plenty of people from “the coasts” in the US who would find our home in St. Louis both palatial and incredibly inexpensive. This is our account of what we’re looking at as we begin our shopping phase in earnest. Your mileage will vary.

There are competing beliefs on where the market will go in the coming months.

• Conventional wisdom says there’s a bubble about to burst. Some of this may be because the memory of the 2008 financial crisis lingers in the nation’s memory. There are a lot of variable interest rate housing loans that families will default on as their monthly payments rise and wages do not, the thinking goes.

• There are also a ton of foreigners still willing to pay to move to Lisbon. Will they rush in to fill the void and stabilize the market? It’s anyone’s guess.

• And then there’s the government. Recognizing the untenability of the current market, they are taking action.

  • First the Golden Visa is being discontinued. Will phasing it out have the desired approach, or will those who want to be in Portugal just find another way?

  • Ever mindful of the economy, the government, at the same time, is initiating a new Digital Nomad Visa. These groups will be going after somewhat different markets in Lisbon, but how much?

  • Also, no new short-term lease licenses will be issued and there will be tax incentives to move a unit from the short-term (generally used by tourists) to the long-term (used by residents) lease market. That could create a better overall real estate scenario - unless the seven-year phase-in mitigates the effects they’re hoping for.

Our Magic 8 Ball gives us the ol’ “Reply hazy, try again” when we ask how this will all play out (some of the changes are still in the proposal stage and could be modified or cut, and who knows what unintended consequences will arise) so we’ve started moving ahead with our search. There are some exciting irons in the fire but nothing we’re ready to share quite yet.

Wish us luck!

That’s all for now.

Love from Lisbon,

Scott & Amy