Questions about Golden Visa, and borrowing large amounts from family...

delmonta

This may seem like an odd question, and I have very little experience with investing so forgive any idiocy on my part. 

I am from the UK, and own my house outright. I travel a lot and do freelance work in Europe and the rest of the world. For years I've worked with a Foundation/Rehab in Thailand, and they are starting a place in Portugal which I am helping with, its a huge project. I had planned to spend half the year or more in Portugal, so of course Brexit has really put a spanner in the works. 

I have been looking at the Golden Visa Scheme in Portugal for years, but didn't feel comfortable to sell my house and move, not to mention property prices in the only areas I'd live have got a bit out of control. I was interested in the 350k euros investment route, but of course didnt have the spare capital. 

So my cousin, and best friend since childhood has come into a very large amount of money since his mum died. He owns two houses and I've been telling him he really should invest the rest of his money, and diversify a bit. 

I had all but given up on the idea of getting this golden visa. But I then wondered is I am able to borrow that amount of money from my cousin? What are the implications of this? He is also interested in the Golden Visa scheme as he currently lives in Sweden and does not plan to move back to the UK full time. 

I thought if he has the capital, we could both get the golden visa, investing in an Index fund, something low risk, low reward (they have funds which are designed around the golden visa, so you invest for 5 years and they aim to protect your capital and pay dividends). So at the very least its going to be better than it sitting in the bank as it is now depreciating in value. 

Obviously he would get any interest and dividends, and if he wanted it I could offer him extra like 5% of the investment for helping me. After 5 years, he can take the money and do whatever he wants with it. 

please tell me if this sounds feasible, as I know it seems a bit of a wild idea. 

- Can I simply borrow 350k from a family member? 
- Would you advise against investing in a foreign (regulated) index fund? Considering the goal is to get the visas, and mostly protect capital not grow it 

Any advice or thoughts would be much appreciated
Thank you

delmonta

And here is a page with info about the visa : https://nomadgate.com/portugal-golden-visa-guide/#the-relatively-cheap-and-easy-route-investment-funds

benbay001

The Portuguese golden visa is 500k Euros.
Even then, thats for property or investment into a Portuguese company.
Im not certain, but i doubt a global index fund would be allowable.
You may be able to buy an index of Portuguese companies, but thats not very diversified.
The 350k Euro visa is if you buy a place thats in need of renovation.

delmonta

benbay001 said:

The Portuguese golden visa is 500k Euros.
Even then, thats for property or investment into a Portuguese company.
Im not certain, but i doubt a global index fund would be allowable.
You may be able to buy an index of Portuguese companies, but thats not very diversified.
The 350k Euro visa is if you buy a place thats in need of renovation.

Thanks, as far as I know the minimum for investing in funds is 350k euros. You can see it on the site I linked to. 

You dont have to invest in a single Portuguese company, you can invest in a variety of funds

benbay001

Oh, it says 350k into private equity or venture capital. Thats not the same as what youre envisaging.
Venture capital is very very high risk and private equity would require you to find a company looking for private investment.
Not the same as buying an index fund by a long way.
Someone will correct me if i am wrong, no doubt.

bowlhead99

delmonta said:

benbay001 said:

The Portuguese golden visa is 500k Euros.
Even then, thats for property or investment into a Portuguese company.
Im not certain, but i doubt a global index fund would be allowable.
You may be able to buy an index of Portuguese companies, but thats not very diversified.
The 350k Euro visa is if you buy a place thats in need of renovation.

Thanks, as far as I know the minimum for investing in funds is 350k euros. You can see it on the site I linked to. 

You dont have to invest in a single Portuguese company, you can invest in a variety of funds

None of them are of the type of 'low risk Index funds' that you suggested in your OP that you would want to invest into.

The article you linked talks about how investing 350k would in practice cost 380k due to fees, and that most of the qualifying fund types would be private equity or venture capital (which means a loss of 50-80% couldn't be unexpected from an individual fund) or be specialist funds that try to skirt the rules of what's allowable for the Golden Visa investment sectors.

The latter will come with risk of non-compliance as well as likely being real-estate development heavy, and the rules on where the money can be invested by individuals or funds are tightening from this year, ruling out some attractive options through which such funds may have previously achieved their returns.

While the returns of such dedicated funds are lower than the potential from private equity or venture capital, you should not assume that a low return equates to low risk. You can still lose 50% or more in the Portuguese real estate game, especially if you have a particular target timeframe for taking your money out that isn't flexible. And while early exits at 6-7 years may be offered, an early exit will not necessarily be at full prevailing NAV. 

If your cousin is willing to lend you over 350k for six years in exchange for the low returns (or losses) you expect to get from it and only 5% of the 350k,  when he could instead put it into proper low-fee global investments which did not have the Portuguese GV restrictions, perhaps he is a saint who has a lot of love for you.

Practically speaking, he would presumably want to secure his loan with a floating charge over both your home and the proposed investment, for when the investment loses money. Perhaps he would want to denominate the loan in SEK rather than Euro so he doesn't lose (say) a fifth of his money if EUR devalues by 20% over the term, which would add some risk for you when you need to pay it back and it costs you more EUR than you borrowed. Either way, he'll need to take good legal advice on how to make sure he can enforce the debt to be repaid when the borrower is a few thousand km away in another country.

Business deals with family can sometimes work out very well, but most people would advise not to mix borrowing and investing with friends or family.

barnstar2077

I have known friendships to break down over a few thousand, with bitterness lasting decades.  I wouldn't in a million years consider borrowing this kind of money from an individual, whether I knew them well or not.   

delmonta

Thanks for your input

Yes on further inspection it seems these funds re mostly VC funds, and although lower risk than many other VC funds due to being in property, hospitality, agri etc. rather than tech startups, they are still risky. I've been going through. huge thread elsewhere about it and the general consensus is that its impossible to really do due diligence on a lot of these funds, because they dont have much if any history, and even if you had a lot of confidence in the people/fund its still a risk

Its a shame, as I originally thought you could invest in some sort of Index fund and have extremely low risk and protect your capital. 

I wouldn't say my cousin is a saint but we are very close, he has money to spare and it's really making some big decisions about the future, the possibility of living/retiring in Portugal, which we have talked about. Of course I would never want him to lose money, but he has little or no drive to make his money work for him. I try to encourage him, but I have a feeling in 5 years it might still be sitting there depreciating. Hence the reason I came up with this 'out there' idea

I have been considering this Visa for years, but really missed the boat on property, and now they aren't allowing people to invest in Lisbon and Porto, so the property route is off the table

I will have to give it a lot more thought
thanks again