In this article, we will go through What is the best investment route to choose for the Golden Visa. Real estate versus Investment funds.
So, what are the investment possibilities to obtain the Golden Visa?
There are several of them, In this video, we will go through the main ones.
Article 90-A: Residence Permit for investment purposes states the options:
5. The fifth option is The purchase of real estate property within specific amounts from 280K to 500K and above but in specific regions. There is a chart stating which ones, so if this is your choice, you need to be mindful of these rules.
6. The sixth option is a Capital transfer of the amount of 500K or higher, for the acquisition of units of participation in investment funds or venture capital fund of funds dedicated to the capitalization of companies, capital injected under the Portuguese legislation, whose maturity, at the moment of the investment, is, at least, of five years and, at least, 60% of the investments are realized in commercial companies with head office in national territory;
So, what is the best option?
If you look at it from a resource allocation perspective, it’s essentially, you being in a position of doing all the work, or putting your money to work and saving time. Here’s why:
1. if you decide to buy or refurbish a building, you need to have someone here looking for one, have it under contract, find contractors, deal with them, pay them, and have to deal with the typical bumps along the road that happen with real estate fixes and flips. Also, from a tax perspective, you get hit with: stamp duty, municipal taxes, maintenance costs, insurance costs, deed charges, fiscal and legal additional costs.
2. if you decide to acquire units of participation in a fund, they already did all the groundwork, they vetted and acquired commercial properties, they collect rents, and have a dedicated existing property management company that deals with all the day-to-day operations, so it’s essentially putting money to work hard for you.
Also, from a tax perspective,
-there is a 0% withholding tax on the dividends received. You won’t get a withholding tax on the dividends received from rents.
-capital gains on both the sale and redemption of the participation units in the funds, are exempt from taxes for non-residents with no permanent establishment in Portugal. So it is tax efficient.
As for returns, You will get historical gross annual yields on a commercial or industrial real estate fund of 6-8.4% per annum.
The funds typically charge you 1% per annum and 10% at the sale of the portfolio.
this means that they keep 1% of the rents every year, and at the end, let’s say we bought a 100K house and sold it for 120K, the delta of 20K, you keep 90%, so 18K and the fund keeps the remaining 10%, or 2K from this example.
So what about Bernie Maddof schemes, and funds with no track record?
In Portugal, there are at the time of this video 26 registered funds for the Golden Visa. We only work with 4.
What do you recommend?
Our main criteria are:
1. Long Good Standing Track record: must have been in business for more than 10 years, with no formal registered complaints
2. AUM: must have at least 250M of assets under management
3. Communication: team (legal, compliance, management) must be responsive, anytime we need something.
This is your criteria, what about formal procedures?
1. In Portugal, our local enforcer is the CMVM. In the US there is the SEC, here is the CMVM They both have the same role of enforcers.
CMVM regulates and enforces compliance rules for the funds. In order to keep existing, they need to keep complying and be on good terms in regards to legal and regulations. all funds are required to be registered with the CMVM and you can check the CMVM’s website for all their licenses and track records.
2. all funds are audited by entities like EY, KPMG, Deloitte, and Mazars. These reports are available so any investor can see the report of their chosen fund.
3. there is a separation between the fund and the investment company. The funds are held in a depositary bank, and the investment company just instructs how to proceed based on the fund mandate.
So, if there had been an issue in regards to bad practices under the investment route using golden visa funds, you would have heard about it.
In reality, these funds have performed so well, that their AUM keeps growing at healthy levels because they keep performing.
Portugal is a small country with an even smaller segment of the population actively working in the investment banking/financial advisory sector.
What about your objectivity? How do you get paid?
As Independent Financial Advisor, we get paid for the products and services we recommend. The fee is the same across the board, from product A to product Z, so If I would be looking just from the Economical point of view, it would not make any difference whatsoever.
What makes a difference for us is if clients stay for the long run. Because if they keep the products, we keep getting paid.
So it makes all the sense in the world to have people on the right products, and happy with their decisions and results. Funds and related services keep performing well, clients remain happy, we keep getting paid.
So essentially, it all comes down to our fiduciary responsibility to our clients. By remaining independent, we can remain objective and have the client’s interests put first.
This is our key approach: Meaningful work, meaningful relationships.
If you want to learn more, schedule a free complimentary call with us, using the provided calendly link, so we can help you with your process.
Stay Strong Friend.
Use this link to book a complimentary call: https://euseguros.pt/en/contactos
