Essential Renovation Decisions That Increase Algarve Rental Income
Key Takeaways
Kitchen and bathroom updates deliver 250-400% ROI whilst bedroom renovations rarely justify costs. Guests spend minimal time in bedrooms but judge properties heavily on kitchen functionality and bathroom quality.
Air conditioning installation returns investment in 18-24 months through higher rates and occupancy. Properties without AC are filtered out by 70% of summer searchers regardless of other features.
Cosmetic updates (paint, lighting, fixtures) cost €3,000-8,000 and increase nightly rates €15-30. Fresh, modern aesthetics dramatically improve listing photos and guest perception.
Pool additions cost €15,000-40,000 with 4-8 year payback periods—only worthwhile for villas targeting families. Beach apartments within 500m of ocean shouldn't add pools; guests use the sea.
Open-plan living space conversions increase booking rates 35-50% for 2-bedroom properties. Modern travellers prefer sociable layouts over formal dining rooms they won't use.
Outdoor living upgrades (terraces, BBQ areas, pergolas) deliver 300-500% ROI in the Algarve's climate. €4,000-8,000 investments often increase rates €20-40/night whilst creating compelling listing photos.
Want to see what your rental property in the Algarve should actually be earning?
Click here to get your free earnings estimate using real Algarve market data.
Teresa bought a dated 1990s 2-bedroom Luz apartment for €220,000. She had €40,000 renovation budget and faced critical decisions: modernise the entire property cosmetically (€35,000) or focus on high-impact upgrades (kitchen, bathrooms, outdoor terrace, AC) for the same budget?
She chose targeted upgrades: new kitchen (€8,500), bathroom renovations (€6,000), air conditioning (€2,400), outdoor terrace transformation with pergola (€7,200), fresh paint and lighting throughout (€4,200), professional photography (€600). Total: €29,000, leaving €11,000 reserve for furnishings.
Results: Comparable unrenovated properties rent for €85-95/night at 55% occupancy. Teresa's targeted renovations achieved €135/night at 68% occupancy—€22,000 additional annual revenue. Her renovation paid for itself in 16 months.
Her neighbour spent €38,000 on luxury bedroom furniture, designer tiles in hallways, and high-end appliances. She rents for €105/night at 58% occupancy—barely better than unrenovated properties. Guests don't pay premiums for features they don't notice or use.
Renovation ROI for Algarve rentals isn't about total spending—it's about strategic investment in features guests actually value and that photographs well for listings.
High-ROI Renovations: Where to Invest First
Kitchen Modernisation: 250-400% ROI
Functional, attractive kitchens dramatically impact booking decisions. 68% of travellers cook at least half their meals when staying in holiday rentals—kitchens must work.
High-impact kitchen upgrades:
Replace dated cabinets/doors (€2,500-5,000)
New countertops (€1,200-2,500)
Modern appliances (dishwasher essential): €1,800-3,500
Updated lighting and fixtures: €400-800
Fresh backsplash: €600-1,200
Quality tap/sink: €200-400
Total investment: €6,500-13,000 Impact on nightly rate: €15-25 increase Payback period: 12-18 months
Kitchens also photograph dramatically better after updates—your listing's first impression improves substantially. Understanding how to design and furnish for Airbnb success helps you make kitchen choices that appeal to your target guests.
What NOT to do:
Don't install commercial-grade appliances (€15,000+ kitchens targeting €150/night properties makes no sense)
Skip granite/marble countertops (quartz costs less, performs better)
Avoid custom cabinetry (IKEA kitchens work perfectly for rentals)
Don't create professional chef spaces (guests want functional, not professional)
Bathroom Renovations: 200-350% ROI
Dated, poorly maintained bathrooms generate negative reviews faster than any other property feature. Modern, clean bathrooms drive bookings.
High-impact bathroom upgrades:
Walk-in shower replacing old tub/shower combo: €1,800-3,500
Modern vanity and sink: €400-800
Quality fixtures (tap, showerhead, toilet): €300-600
Proper lighting and mirror: €200-400
Fresh tiles (walls/floor): €1,500-3,000
Heated towel rail: €150-300
Total per bathroom: €4,500-8,500 Impact on nightly rate: €10-20 increase Payback period: 18-24 months
For 2-bathroom properties, renovating both bathrooms costs €9,000-17,000—significant investment but essential for premium positioning. Budget-conscious owners can renovate the main bathroom fully (€6,000-8,500) and update the second cosmetically (€1,500-2,500).
Air Conditioning Installation: 300-450% ROI
In the Algarve's climate, AC isn't luxury—it's baseline. Properties without AC are filtered out by 70% of summer searchers regardless of price.
Installation costs:
2-bedroom apartment: €1,800-2,700 (2-3 split units)
3-bedroom villa: €2,700-4,000 (3-4 units)
Impact:
Unlocks "air conditioning" filter in searches
Increases summer bookings 40-60%
Allows €20-35 higher summer rates
Reduces negative reviews about heat
Payback period: 18-24 months (often faster during peak summers)
AC should be among your first renovation priorities. The difference between €90/night without AC and €120/night with AC during July-August pays for installation within one summer season. When selecting essential amenities that increase booking rates, AC tops every analysis.
Outdoor Living Space Enhancement: 300-500% ROI
The Algarve's climate makes outdoor space usable 8-10 months annually. Properties with attractive outdoor areas see dramatically higher booking rates and command premium pricing.
High-impact outdoor upgrades:
Pergola or awning for shade: €1,200-3,000
Quality outdoor dining furniture: €800-1,500
Lounge seating: €800-1,500
Gas BBQ: €300-600
Outdoor lighting: €300-700
Landscaping/planters: €400-1,200
Outdoor shower (coastal properties): €300-600
Total investment: €4,000-9,000 Impact on nightly rate: €20-40 increase Payback period: 10-15 months
Outdoor spaces create exceptional listing photos—often becoming your primary image. Properties showcasing attractive terraces receive 40% higher click-through rates than those with poor outdoor presentation.
Cosmetic Refresh: 200-300% ROI
Fresh, modern aesthetics dramatically improve listing perception without major construction.
High-impact cosmetic updates:
Professional painting throughout (white/light neutrals): €1,500-3,500
Modern light fixtures: €600-1,200
Updated door handles and hardware: €200-400
New window treatments: €400-800
Decorative mirrors: €200-500
Throw pillows and soft furnishings: €300-600
Total investment: €3,200-7,000 Impact on nightly rate: €10-20 increase Payback period: 12-18 months
Fresh paint alone transforms properties. €1,500 in professional painting often generates more booking impact than €5,000 in luxury furniture guests barely notice.
Medium-ROI Renovations: Evaluate Carefully
Flooring Replacement: 150-250% ROI
New flooring improves aesthetics but rarely justifies premium pricing unless existing flooring is genuinely damaged.
Costs:
Vinyl plank (best for rentals): €25-45/m² installed
Ceramic tile: €35-60/m² installed
80m² property: €2,000-4,800 total
When to do it:
Current flooring is damaged/stained beyond cleaning
Dated tiles from 1980s-90s (terracotta, busy patterns)
Carpet in living areas (avoid carpet in rentals—stains and hygiene concerns)
When to skip it:
Existing tile is neutral and undamaged
Budget is limited (other upgrades provide better returns)
Flooring photographs adequately
Pool Additions: 100-200% ROI (Long Payback)
Pools increase rates 40-60% and occupancy 15-20%, but installation costs €15,000-40,000 mean 4-8 year payback periods.
When pools make sense:
Family villas (3+ bedrooms) not near beaches
Properties targeting premium market (€200+/night)
Long-term investment horizon (5+ years)
Space and budget available (€20,000+ realistic minimum)
When to skip pools:
Beach apartments within 500m of ocean (guests use sea)
1-2 bedroom apartments (pool doesn't match property type)
Budget under €15,000 (inadequate for quality installation)
High ongoing costs concern you (€150-300/month maintenance)
Understanding the real costs of Algarve property ownership including pool maintenance helps you evaluate whether this investment makes financial sense.
Open-Plan Conversions: 200-300% ROI
Removing walls between kitchen/living/dining creates modern, sociable spaces guests prefer.
Costs:
Non-structural wall removal: €1,500-3,000
Structural wall removal: €3,000-6,000 (requires engineer, permits)
Kitchen relocation if needed: +€3,000-8,000
Total: €1,500-14,000 depending on complexity
Impact:
Booking rates increase 35-50% for 2-bedroom properties
Creates better listing photos
Matches modern travel preferences (groups want to socialise)
Allows €15-25 higher nightly rates
Only worthwhile if structural assessment confirms feasibility and costs stay under €6,000. Properties already with open layouts don't need this.
Low-ROI Renovations: Usually Skip These
Luxury Bedroom Furniture: 50-100% ROI
Guests spend minimal time in bedrooms. €5,000 designer bedroom furniture doesn't improve bookings versus €2,000 quality IKEA alternatives.
What matters in bedrooms:
Quality mattresses (€600-800 each)—this matters enormously
Blackout curtains for sleep quality
Adequate storage (wardrobe, shelves)
Bedside lighting
Fresh, neutral décor
Total per bedroom: €1,500-2,500 delivers same booking results as €5,000-8,000 luxury setups.
High-End Appliances: 25-75% ROI
€3,000 espresso machine or €4,000 professional range don't increase bookings versus €300 quality coffee maker and €800 standard cooker.
Guests value functionality and cleanliness over brand prestige. Save money here; invest in AC or outdoor spaces instead.
Decorative Tile Work: 0-50% ROI
Elaborate tile patterns in hallways, intricate backsplashes, or decorative bathroom features cost €3,000-8,000 whilst barely impacting bookings.
Simple, clean, neutral tile in bathrooms and kitchens photographs well and costs 50% less than designer options.
Built-In Wardrobes and Custom Storage: 50-100% ROI
Custom built-ins cost €2,000-5,000 per room. IKEA PAX systems cost €400-800 and provide equivalent functionality for rental purposes.
Unless you're targeting luxury market (€300+/night), freestanding quality furniture works fine.
Smart Home Technology: 0-75% ROI
Automated lighting, smart thermostats, and app-controlled everything costs €2,000-6,000 whilst confusing guests and creating support headaches.
Exception: Smart locks for keyless entry (€200-400) genuinely improve operations and guest experience. The rest is unnecessary complexity.
Renovation Budgeting Strategy
€15,000-25,000 Budget (2-bedroom apartment):
Priority 1 investments:
AC installation: €1,800-2,700
Kitchen update: €6,500-8,000
Main bathroom renovation: €4,500-6,000
Cosmetic refresh (paint, lighting): €2,500-4,000
Outdoor furniture upgrade: €1,500-3,000
This covers essentials making properties competitive whilst staying within modest budgets.
€25,000-40,000 Budget (2-bedroom apartment):
Add to Priority 1:
Second bathroom renovation: €4,500-6,000
Outdoor terrace upgrade (pergola, quality furniture): €4,000-7,000
Flooring replacement if needed: €2,500-4,000
Quality furnishings throughout: €3,000-5,000
This positions properties for premium pricing (€120-160/night range).
€40,000-60,000 Budget (3-bedroom villa):
Comprehensive renovation:
Full kitchen modernisation: €10,000-15,000
All bathroom renovations: €12,000-18,000
AC throughout: €3,000-4,500
Outdoor living transformation: €8,000-12,000
Complete cosmetic refresh: €5,000-8,000
Quality furnishings: €5,000-8,000
This creates premium properties commanding €180-250/night.
Phased Renovation Approach
Most owners can't invest €30,000-50,000 upfront. Phased approaches work well for Algarve rentals:
Phase 1 (Pre-Launch): €8,000-15,000
AC installation (essential)
Cosmetic refresh (paint, lighting)
Kitchen basics (if non-functional)
One bathroom update (if terrible condition)
Basic outdoor furniture
Get property rentable and generating income.
Phase 2 (Months 6-12): €8,000-15,000
Kitchen full renovation
Second bathroom or main bathroom completion
Outdoor space enhancement
Quality mattresses and bedding
Revenue now funding improvements.
Phase 3 (Year 2): €5,000-12,000
Flooring if needed
Remaining bathrooms
Furniture upgrades
Pool installation evaluation (if viable)
Using rental income for ongoing improvements whilst maintaining cash flow.
This approach allows properties to start earning whilst improving systematically. When you're working through your first 90 days after purchasing, understanding which renovations must complete before launch versus which can wait helps prioritise limited budgets.
Renovation Mistakes That Cost Money
Mistake 1: Over-Renovating for Market Position
€60,000 renovation targeting €100/night market makes no financial sense. Guests paying €100/night have different expectations than €200/night guests.
Match renovation investment to realistic achievable rates based on location and property type.
Mistake 2: Renovating Before Understanding Market
Teresa's neighbour renovated based on personal preferences, not market research. She installed luxury features guests don't value whilst ignoring essentials they do.
Research comparable properties in your area. What features do top-performing listings highlight? What do guest reviews praise or criticise?
Mistake 3: Ignoring Photography Impact
Renovations that don't photograph well waste money. Dark, cramped spaces remain dark and cramped in photos regardless of luxury finishes.
Prioritise renovations creating visual impact: outdoor spaces, open layouts, bright kitchens, modern bathrooms. These drive bookings through better listing photos.
Mistake 4: Delaying AC Installation
"We'll add AC next year after generating revenue" sounds logical but costs thousands in lost bookings and lower rates during the crucial first summer season.
AC installation should complete before launch. The revenue loss from operating without AC far exceeds installation costs.
Mistake 5: Copying Luxury Hotel Aesthetics
Holiday rentals aren't hotels. Guests want comfortable, functional spaces—not sterile luxury showrooms.
Warm, inviting, practical designs outperform cold, minimalist luxury for rental properties. Understanding effective Airbnb copywriting helps you describe renovated spaces in ways that appeal to actual guests.
Working with Contractors in the Algarve
Finding Reliable Professionals
Renovation quality varies dramatically across Algarve contractors. Get 3+ quotes for every significant project.
Ask for:
References from other property owners
Photos of completed work
Detailed written quotes
Timeline estimates
Licensing/insurance verification
Expect renovations to take 20-40% longer than quoted. Budget extra time before planned launch dates.
Cost Expectations
Algarve labour costs €15-35/hour depending on trade and contractor quality. Material costs are typically 10-20% higher than UK/US for equivalent products.
Total renovation costs run:
Budget: €150-250/m²
Mid-range: €250-400/m²
Premium: €400-600/m²
For 80m² apartment:
Budget renovation: €12,000-20,000
Mid-range: €20,000-32,000
Premium: €32,000-48,000
Managing Projects
If managing renovations remotely:
Hire local project manager (€800-1,500)
Require photo updates every 2-3 days
Visit in person at key milestones
Hold 10-20% payment until completion
Build 4-6 week buffer before planned launch
Renovation delays are standard in Portugal. Plan accordingly.
How Casa Oeste Guides Renovation Decisions
Choosing which renovations deliver ROI requires local market expertise. We see hundreds of Algarve properties monthly—we know what works and what wastes money in specific micro-markets.
Our renovations service includes:
Design & Planning (€1,900+):
Property assessment identifying high-ROI improvements
Detailed renovation plan prioritised by impact
Budget allocation strategy
Contractor recommendations
Timeline development
Project Management (€2,900+):
Contractor coordination and oversight
Quality control and milestone verification
Budget management
Timeline monitoring
Issue resolution
Complete Renovation Service:
Full project design and management
Contractor sourcing and negotiation
On-site supervision
Quality assurance
Turnkey completion
We prevent expensive mistakes like Teresa's neighbour (€38,000 spent on low-impact upgrades) whilst identifying opportunities most owners miss (outdoor space transformations often overlooked).
Our recommendations are based on actual booking data from managed properties, guest review analysis, and competitive market research—not generic renovation advice.
When understanding which amenities increase booking rates, renovation decisions and amenity selection work together. AC installation is both renovation and amenity. Outdoor furniture is both amenity and renovation priority.
Visit our renovations page to learn about our Design & Planning service, or explore our pricing page for comprehensive renovation and property management solutions.
Conclusion
Renovation ROI for Algarve holiday rentals follows clear patterns: kitchens, bathrooms, AC, and outdoor spaces deliver 200-500% returns whilst luxury bedrooms, high-end appliances, and decorative finishes barely impact bookings.
Teresa's targeted €29,000 renovation generated €22,000 additional annual revenue (76% annual ROI), paying for itself in 16 months. Her neighbour's €38,000 spent on low-impact luxury generated €6,000 additional revenue (16% annual ROI) with 6+ year payback.
The difference? Strategic investment in features guests actually value versus personal preferences and assumptions.
Critical renovation priorities:
Air conditioning (18-24 month payback)
Kitchen modernisation (12-18 months)
Bathroom updates (18-24 months)
Outdoor living enhancement (10-15 months)
Cosmetic refresh (12-18 months)
Skip luxury bedroom furniture, high-end appliances, decorative tilework, and smart home technology unless targeting genuine luxury market (€300+/night).
Match renovation investment to achievable market rates. €60,000 renovations targeting €120/night markets waste money. Understand your property's realistic ceiling based on location and type, then renovate to that standard—not beyond it.
Most importantly, prioritise renovations that photograph well. Listing photos drive bookings more than anything else. Dark spaces remain dark in photos regardless of luxury finishes. Bright, open, attractive spaces with modern kitchens and inviting outdoor areas convert browsers into bookings.
Renovation decisions determine whether your property achieves 55% occupancy at €95/night or 70% occupancy at €135/night. That difference—€18,000-25,000 annually for typical 2-bedroom properties—justifies careful, strategic renovation planning.
Want to see what your rental property in the Algarve should actually be earning?
Click here to get your free earnings estimate using real Algarve market data.
Frequently Asked Questions
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Air conditioning installation delivers the highest ROI (300-450%) with 18-24 month payback periods. Properties without AC are filtered out by 70% of summer searchers regardless of other features, dramatically reducing booking potential. Installation costs €1,800-2,700 for typical 2-bedroom apartments whilst increasing summer rates €20-35/night and improving occupancy 40-60%. After AC, outdoor living space enhancements (pergolas, quality furniture, BBQ areas) deliver 300-500% ROI at €4,000-9,000 investment, increasing rates €20-40/night whilst creating compelling listing photos. Kitchen and bathroom modernisation follow closely at 200-400% ROI.
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Only for family villas (3+ bedrooms) not near beaches and if you have €20,000+ budget with 5+ year investment horizon. Pools increase rates 40-60% and occupancy 15-20%, but installation costs €15,000-40,000 mean 4-8 year payback periods. Beach apartments within 500m of ocean shouldn't add pools—guests use the sea and you'll waste €20,000+ on installation plus €150-300/month maintenance. For properties where pools make strategic sense, the investment eventually pays off through sustained premium pricing, but it's long-term thinking, not quick ROI.
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Budget €15,000-25,000 for essential competitive positioning (AC, kitchen update, main bathroom, cosmetic refresh, outdoor furniture). This makes properties rentable at €100-130/night. Budget €25,000-40,000 for premium positioning (both bathrooms, full kitchen renovation, comprehensive outdoor upgrade, quality furnishings throughout) targeting €120-160/night. Budget €40,000-60,000 for luxury positioning (complete modern transformation) if targeting €180-250/night is realistic for your location. Match renovation investment to achievable market rates—over-renovating for your area wastes money whilst under-renovating leaves revenue on the table.
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Essential pre-launch renovations: air conditioning installation (non-negotiable for Algarve summers), functional kitchen (doesn't need to be new, but must work properly), at least one fully functional bathroom, fresh paint throughout, basic outdoor furniture, and quality mattresses. These represent minimum viable product for competitive rentals. You can delay second bathroom renovation, kitchen modernisation, outdoor enhancement, and flooring replacement until after launch once property generates revenue. Starting to earn income quickly whilst improving systematically beats delaying launch for perfect renovations. Understanding your first 90 days after purchase helps prioritise pre-launch essentials.
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No. Guests value functionality and cleanliness over brand prestige. €3,000 espresso machines don't increase bookings versus €300 quality coffee makers. €5,000 designer bedroom furniture doesn't outperform €2,000 quality IKEA alternatives. €4,000 professional ranges aren't valued more than €800 standard cookers. Save money on appliances and luxury furnishings—invest instead in AC, outdoor spaces, kitchen functionality, and bathroom quality. These drive actual booking decisions. The only exception is genuine luxury market (€300+/night) where premium finishes match guest expectations, but even then, functionality matters more than brand names.
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Casa Oeste's Design & Planning (€1,900+) provides property-specific renovation recommendations based on local market analysis, competitor research, and actual booking data from our managed portfolio. We identify high-ROI improvements, create detailed budgets, recommend reliable contractors, and develop realistic timelines. Our Project Management service (€2,900+) handles contractor coordination, quality control, and issue resolution. We prevent expensive mistakes (like €38,000 spent on features guests don't value) whilst identifying opportunities most owners overlook. Our recommendations prioritise renovations that photograph well and drive bookings, not generic upgrades. Visit our renovations page or pricing page to learn more.
About the Author
Matt Deasy is the founder and CEO of Casa Oeste: a property expert with more than 20 years of experience in international tourism and 15 years living in the Western Algarve. Having renovated multiple properties across Portugal, Matt brings a practical, boots-on-the-ground perspective to every article.
A travel industry expert, he previously launched and ran a multinational travel company, selling tens of thousands of bed nights across Europe and Africa for over a decade - and is the co-founder of PortugalXpert - specialists in Portugal relocation. He is the co-author of two books on relocating and investing in Portugal: Portugal Beckons and Your Portuguese Property Beckons, both available on Amazon.
Through Casa Oeste, Matt helps homeowners unlock the full potential of their Algarve properties with expert management, renovations, and market-led insights.
