What does a holiday rental in the Algarve earn?
On stock Terrivio tracks, gross yield in the Algarve is typically 5–8% and net yield 3–5% after operating costs and purchase costs. The gap is the whole story: platform fees, cleaning, management, energy, insurance, community charges and local tourist tax often absorb 35–50% of gross revenue.
Worked example: a property at €270,000 let at €125 per night with 58% occupancy books about 212 nights and €26,500 of annual revenue (9.8% gross yield). After 25% variable costs and €3,600 of fixed costs, NOI is about €16,275 — 5.6% net on a total investment of €291,600.
Seasonality — do not annualise a peak week
The Algarve season is long by Atlantic standards (Easter through October) with golf filling winter in the central/western strip. Eastern towns (Tavira) are quieter off-season. 55–65% is a solid licensed-villa case; 80% is peak-week thinking.
Condominium fees on purpose-built tourist apartments can be €2,000–4,000 a year. Add that to fixed costs, not to 'someone else's problem'. IMI (annual property tax) is extra.
Purchase costs and tax in the Algarve
Budget about 8% above the asking price for acquisition costs in Portugal. Main item: IMT 0–7.5% (progressive) + 0.8% stamp duty. These costs are gone on day one — that is why Terrivio divides NOI by total investment, not by asking price.
Under the simplified regime, AL income is taxed on 35% of gross revenue (50% in containment zones); non-residents pay a flat 25%. Annual IMI property tax is 0.3–0.45% of the tax value.
Tourist tax: Lisbon €4 · Porto €3 per night. Usually collected from guests, but it still sits inside your competitive nightly rate.
Short-term rental rules in the Algarve
An Alojamento Local registration is mandatory. The national freeze was lifted, but municipalities set containment zones. Confirm the parish before you reserve, and budget 25% non-resident tax on simplified AL income (35% of gross as the taxable base outside containment zones).
Country overlay (Portugal): An Alojamento Local (AL) registration is mandatory. The 2023 national freeze was reversed in 2024–2025; municipalities now set their own containment zones — Lisbon and Porto restrict new ALs in central parishes.
Popular towns include Lagos, Albufeira, Tavira, Carvoeiro and Vilamoura. Each has a different seasonality and licence map — Terrivio scores regulation for the exact city on a listing analysis.
How to calculate yield in the Algarve
- Estimate annual revenue. Use a blended ADR and annual occupancy, not a peak-week rate. Booked nights = 365 × occupancy. Then revenue = ADR × booked nights.
- Subtract operating costs. Variable costs (platform, cleaning, management) plus fixed costs (insurance, utilities, community fees, maintenance). A starting point in the Algarve is 25% variable plus the fixed costs in the calculator.
- Add purchase costs to the price. Include transfer tax, notary, registry and agency — about 8% in the Algarve.
- Divide NOI by total investment. That is net yield. Compare it with your mortgage rate and with a long-term rental fallback before you bid.
Frequently asked questions
Is a holiday home in the Algarve a good investment in 2026?
It depends on licence, micro-location and whether you need the weeks yourself. Typical net yields are 3–5%. Always underwrite net, never gross, and never assume a peak-week rate runs 365 days.
How do I calculate rental yield in the Algarve?
Net yield = (annual revenue − variable costs − fixed costs) ÷ (purchase price + acquisition costs). Annual revenue is ADR × 365 × occupancy. The calculator on this page does that with Algarve defaults.
What are purchase costs in the Algarve?
Plan about 8% of the price: IMT 0–7.5% (progressive) + 0.8% stamp duty, plus notary, registry and any agency fee.
Do I need a licence to let in the Algarve?
An Alojamento Local registration is mandatory. The national freeze was lifted, but municipalities set containment zones. Confirm the parish before you reserve, and budget 25% non-resident tax on simplified AL income (35% of gross as the taxable base outside containment zones).