How to Make Your Algarve Apartment Profitable with Short-Term Rentals
Why Invest in Short-Term Rentals in the Algarve
The Algarve, in southern Portugal, has been one of Europe’s favorite travel destinations for many years. Its golden beaches, sunny climate, and historic towns such as Lagos, Portimão, Albufeira, and Sagres attract millions of tourists every year.
For property owners, this creates a unique opportunity to generate rental income through short-term holiday lets (Airbnb, Booking.com, Vrbo…).
But most owners ask themselves two simple questions:
👉 How can I maximize the profitability of my apartment in the Algarve?
👉 What’s the best strategy — self-management or a local property management company?
In this article, we’ll break down every step to make your Algarve apartment profitable, optimize your rental returns, and avoid the most common mistakes.
Why Short-Term Rentals in the Algarve Are a Profitable Investment
Strong International Tourism Demand
Over 20 million visitors per year come to Portugal, and a large share visit the Algarve.
A highly diversified audience: families, retirees, surfers, and digital nomads.
Visitors come mainly from the UK, Germany, France, the Netherlands, Scandinavia, but also from the USA and Brazil.
An Attractive Property Market
Real-estate prices in the Algarve remain lower than in other European coastal destinations (French Riviera, Balearic Islands, Tuscany).
High demand for short-term rentals throughout the year.
Potential for net yields between 6 % and 12 %, depending on location and management.
Higher Income Than Long-Term Rentals
Long-term lets: stable but low income (around €5–7 /m² on average).
Short-term rentals: nightly rates from €70 to €300, depending on location, season, and property quality.
The Key Factors That Influence Your Apartment’s Profitability
Location, Location, Location
The golden rule of real estate still applies.
Lagos & Portimão – strong tourist appeal and high seasonal demand.
Albufeira & Vilamoura – lively destinations with high occupancy rates.
Sagres & Vila do Bispo – niche markets (surfing, nature, digital nomads).
Faro & Tavira – more family-oriented, with growing international demand.
Property Quality and Interior Design
A recently renovated, well-decorated apartment means:
More bookings,
Better guest reviews,
Higher nightly rates (+15 % to +30 %).
Essential features include:
High-speed Wi-Fi (crucial for remote workers),
Air conditioning,
Fully equipped kitchen,
Balcony or terrace,
A stylish boho-chic / Mediterranean interior.
Smart Pricing Strategy
High season (June–September): higher rates.
Mid-season (April–May / October): moderate rates.
Low season (November–March): attract digital nomads and longer stays with adjusted pricing.
A dynamic pricing system can increase annual income by 20–30 %.
Professional Management and Guest Experience
A poorly managed property = bad reviews = fewer bookings.
Guests expect:
A smooth and flexible check-in/out,
Spotless cleaning,
24/7 assistance in case of issues.
That’s exactly what a local Algarve property management service provides.
Real Example: How Much Can an Apartment in the Algarve Earn?
Example: a 40 m² apartment in Portimão, purchased for €130,000, renovated for €40,000.
ItemAmountTotal investment€170,000Average nightly rate€90Annual occupancy65 % (~240 nights)Gross annual income€21,600Management fees (20 %)– €4,320Taxes & maintenance– €3,500Net annual income€13,780Net yield≈ 8.1 %
👉 Compared with a long-term rental (~€600 /month = €7,200 /year), that’s almost double the income.
Property Management in the Algarve: The Key to Maximizing Returns
Many foreign owners try to manage their property remotely — and it rarely works well.
The result:
Fewer reservations,
Lower ratings,
Declining income.
A local property management company like Algarve Coastal provides:
📈 Optimized listings on Airbnb, Booking, Vrbo, etc.
💰 Dynamic pricing to boost nightly revenue.
👩💼 Guest management (check-in/out, cleaning, assistance).
🔧 Maintenance and repairs handled locally.
📊 Transparent monthly reporting of your income.
➡ Owners typically earn up to 30 % more compared with self-management.
Legal Requirements and Rental Taxation in Portugal
AL Licence (Alojamento Local)
To rent your Algarve property short-term, you must obtain an AL licence:
Issued by the local city hall,
Requires compliance with safety standards,
The AL registration number must appear on all listings.
Rental Income Taxation
Portuguese residents declare income under Category B (business activity).
Non-residents (e.g., French, German, Dutch owners) must declare rental income in Portugal and their home country, under double-taxation treaties.
A professional Algarve property manager can guide you through the administrative process.
Frequently Asked Questions
How much can you earn with an apartment in the Algarve?
Depending on location and property quality, net returns average 6–12 % per year.
Is it mandatory to hire a property management company?
No, but it’s highly recommended if you don’t live in Portugal. A local team maximizes profitability and avoids logistical issues.
What are the main risks of short-term rentals?
High competition in popular towns (Albufeira, Lagos),
Poor guest reviews due to inadequate management,
Strict regulations requiring an AL licence.
Do I have to charge VAT (IVA) on my rentals?
Generally no — residential rentals are VAT-exempt, unless you offer hotel-like services (daily cleaning, breakfast, etc.).
Conclusion: Turn Your Algarve Apartment into a Profitable Investment
Short-term rentals in the Algarve represent one of Europe’s most attractive real-estate opportunities.
With a well-located, renovated, and professionally managed property, you can easily achieve double-digit annual returns.
👉 By partnering with a specialized local property management company such as Algarve Coastal, you save time, gain peace of mind, and maximize your rental income.
Contact us today for a free revenue estimate and find out how much your Algarve property could earn.
