Buying a Hotel or Guesthouse in the Algarve: What You Need to Know

With its year-round sunshine, strong tourism industry, and growing demand for authentic stays, the Algarve is a top destination not just for holidays — but for hospitality investment.

Whether you’re dreaming of running a cozy B&B in Lagos, a boutique guesthouse in Tavira, or converting a rustic quinta into a wellness retreat in Monchique, Portugal offers unique opportunities to own and operate hospitality real estate. But navigating local licenses, zoning, renovations, and guest accommodation rules takes more than just enthusiasm.

In this article, we walk you through:

• Key considerations before you invest
• The types of hospitality properties you can buy
• Licensing categories (AL, TER, hotel classification)
• Conversion opportunities

What Can You Buy? Hospitality Property Types in the Algarve

Depending on your budget, location, and vision, here are the most common property types buyers consider for tourism:

🏘️ Guesthouses & B&Bs (Alojamento Local)

• Often renovated villas, townhouses, or small buildings
• Operate under Portugal’s AL (Alojamento Local) license
• Easier to register than hotels, but with certain zoning limits
• Suitable for lifestyle investors or owner-managers

🏨 Boutique Hotels

• Usually 6–20 rooms
• Require a hotel or rural tourism license (TER or RNET)
• Often involve heritage buildings or contemporary new builds
• Higher upfront investment but longer-term brand value

🛖 Rural Tourism (Turismo em Espaço Rural)

• Converted farms, quintas, or countryside estates
• Targeted at nature, wellness, or retreat-focused tourism
• May qualify for specific rural development incentives

💼 Operating Hotels for Sale

• Licensed and functioning hospitality businesses
• Often include client base, branding, staff, and existing bookings
• Due diligence required on business performance and legal status

What Is Alojamento Local (AL)?

The AL license allows you to legally rent out rooms or entire properties to tourists. It’s the most accessible way to run a guesthouse or B&B.

✔️ AL Types:

• Quartos (Rooms) – Renting rooms in your own home
• Moradia/Apartamento – Entire villa or apartment
• Estabelecimento de Hospedagem – Guesthouse (more than 5 rooms)

⚠️ Local Restrictions Apply:

Some municipalities (like Lagos and Albufeira) have restricted or suspended new AL licenses in specific zones due to saturation. Always check local council rules before you buy.

🔎 See also: Understanding Alojamento Local (AL) in Portugal: 2025 Rules, Licensing & Tax Implications

What Are TER and Hotel Licenses?

If you’re planning a larger hospitality venture, or want to operate outside of residential zones, you may need a different license:

🏞 TER – Turismo em Espaço Rural

• For countryside estates or nature-focused accommodations
• Requires specific property types and zoning (rustic + approved)

🏨 RNET – Hotel Classification

• Required for officially classified hotels
• More bureaucracy, but stronger branding
• Must meet fire, accessibility, and category-specific regulations

⚠️ These licenses come with stricter obligations — but can support larger commercial ambitions.

Can You Convert a Property into a Guesthouse or Hotel?

Yes — many investors choose to buy and renovate a villa, townhouse, or quinta into guest accommodation.

But you’ll need to confirm:

• The land is urban (can’t register AL on rustic-only land)
• Zoning allows touristic use
• Fire safety and accessibility can be met (for larger projects)
• You have room count below saturation thresholds (where applicable)

In coastal areas like Lagos, Carvoeiro, or Faro, restrictions are tighter. Inland towns like Monchique or rural areas often have more flexibility.

🛠️ See also: Renovating a Quinta or Townhouse into a Guesthouse

Buying an Operating Hotel: What to Watch For

Purchasing a licensed hotel or guesthouse can save you time — but it requires deeper due diligence.

Checklist:

• Are all licenses and taxes up to date?
• Is there any staff you’re obligated to retain?
• Are bookings and reviews transferable?
• Are there any debts or liens on the property or business?

You’ll also want to verify occupancy rates, seasonality, and profitability — ideally with help from a local accountant.

Top Areas for Guesthouse & Hotel Investments

• Lagos: Strong all-year market, historic charm, and boutique appeal
• Tavira: Popular with northern Europeans, authentic architecture
• Carvoeiro: Quiet coastal vibe, good for villa-style guesthouses
• Monchique: Great for retreats, eco-tourism, and wellness
• Golden Triangle: High-end lifestyle brands and upscale boutique hotels

Legal & Bureaucratic Considerations

Before buying or converting a hospitality property, be sure to:

• Check the zoning and usage rights
• Confirm the licensability of the property
• Budget for fire safety and accessibility compliance
• Plan for staffing, insurance, and accounting (if commercial scale)

💼 A local architect and lawyer are essential to check if your dream project is actually viable.