Italy is a fantastic country to visit and affords an unbeatable quality of life with superb cuisine, wine and local specialties. Italy has long been a popular destination for tourists and Expats and although the economy has been struggling in recent years there are some great opportunities to invest in property.
Buying a property is a major investment so you need to think carefully about the purchase. This means that it’s vital to do your due diligence and ensure that you’re researching the property, the area and the local property market in detail before you sign any paperwork.
What Is An Investment Property?
An investment property is a type of real estate that you buy with the sole intention of making a profit or an ongoing return. For example, you can generate a nice passive income from your investment property by renting it out before eventually selling it in the future. Alternatively, you can buy a property to renovate and then sell it quickly for a profit.
If you’re willing to make a long-term investment then you can buy a property and allow the real estate to appreciate over time. This may take several decades, however, the Italian property market has been following a gradual upward trajectory for many years now. While you wait for the real estate to appreciate in value you can either live in it yourself or rent it out to local Italians and tourists.
Disadvantages To Buying An Investment Property In Italy.
There are a few major disadvantages to buying an investment property in Italy:
Complex Legislation And Bureaucratic Red Tape.
The bureaucratic systems in Italy are famously complex and can be extremely difficult to navigate! Not only is there a whole host of national legislation and health and safety laws to abide by but every municipality and region has its own unique codes in place which you have to comply with as well.
Trying to understand and comply with all the regulations can be next to impossible, particularly if you’re a foreign investor buying your first property in Italy. You can, however, employ the help of locals to ensure that your transactions are in full compliance with the various laws that apply. You will probably need to hire a lawyer, a Geometra and an estate agent to help you manage the purchase and subsequent renovations or sales of the property.
Paying the fees for the people you will need to help you with the process can end up being quite costly and represent a real drag on your profit potential. Even so, although it’s frustrating, it’s worth making sure you are in full compliance because otherwise, you can face significant fines or, in the worst-case scenario, criminal prosecution.
The Infrastructure Is Not Always Good In Italy.
While most of Italy’s major cities are well served with excellent public transport, high-speed internet connections and plenty of other amenities, many rural parts of the country are badly served and much worse than you would expect to find in a Western European nation.
Poor infrastructure can put off potential buyers of a property but it can also make it hard to manage a renovation project or get yourself set up with utilities and internet in your new property. In most cases, these problems can be overcome but the time and money it can cost is something that you have to take into account before you buy an investment property in Italy.
Buying And Renovating Property From Overseas Is Difficult.
If you’re a foreign investor, then it can be very difficult to buy a property or oversee a renovation project from overseas. This means that unless you want to move to Italy for the duration of the purchase or renovation you will face a lot of difficulties.
As a compromise, you can frequently return to Italy at key points of a renovation project or during your search for the ideal investment property. Even so, the cost of airfares and accommodation will quickly add up and should be considered as part of your calculations of the potential profitability of buying an investment property abroad.
Italy’s Economy Is Not That Great.
When you buy an investment property in Italy you need to be very careful to properly research the location. One of the important things that you need to research is the local job market. This is because many parts of Italy have a very poor job market with few prospects for young professionals.
Therefore, if the local job market is quite poor you should only consider getting an investment property that would be appealing to retirees or other demographics who won’t be too worried about the lack of job opportunities nearby! The economic growth of the newly emerging economies of Europe are much higher than that of Italy.
Return On Investment Is Not Good.
Italy is a developed Western nation with a great history. Many people are moving to the country for retirement and lifestyle changes. This means that the prices of properties are generally higher than in other Eastern or Central European countries (this is very true if you compare the cities). Although Italy depends a lot on tourist dollars, comparatively Italy will place a lot of limitations on how you can use the property. For example, you might not be able to rent the property short term like you can easily do in other places. Italy also has pro tenant rules that can make it difficult for you to manage your property.
Taxes And Fees When You Sell The Property.
In most Western countries you will end up spending a lot on taxes and fees when you eventually sell the property. Italy is no different. This will take a big bite out of your profit margins.
Advantages To Buying An Investment Property In Italy.
There are a few advantages to buying an investment property in Italy:
The Italian Taxation System Is Great For Investors.
One of the top advantages of purchasing an Italian property is that the levels of tax are significantly lower than in many other parts of the Western world. For instance, if you are buying the property as a long-term investment and plan to live in it then you won’t have to pay any property taxes at all.
Even so, there are some taxes that you will have to pay, although these are not as high as in other parts of Western Europe.
- Stamp Duty In Italy: This is a tax which you have to pay when you buy a property in Italy. The stamp duty will add up to around 9% of the property’s official cadastral value to the price if you purchase from a private seller. However, if you become a resident of the property within 18 months and live there for more than 6 months of each year then the rate is reduced to 2%. On the other hand, if you buy the property from a company then you will usually have to pay around 250 Euros for the stamp duty, although you do have to pay a Value Added Tax (VAT). VAT is 22% in Italy but if the property is your primary residence then the VAT will be 4% of the official cadastral value and 10% for a second home.
- Land Registry Tax In Italy: This tax is a fixed amount that depends on who you buy the property from. For purchases from a private seller, you’ll have to pay around 50 Euros whereas if you’re buying from a company then you’ll need to pay up to 200 Euros.
- Notary And Agency Fees: Although these are not official taxes you should always keep the notary and agency fees in mind when you’re planning to purchase a property. The fees do vary from region to region however the notary fee is usually 1% of the transaction value while the real estate agent’s fees can range from 1-5% of the property’s value.
The Italian Real Estate Market Is Reliable And Secure.
The real estate markets in Italy have experienced rising prices on a consistent basis for many years. This means that if you buy an investment property you can be fairly certain that it will appreciate in value. Italian real estate is always in high demand among foreign investors and Expats so you can rest assured that you’ll be able to sell your property later when you’re ready to cash in on your investment.
Italian Capital Gains Tax – Competitive Rates.
When you sell your property you’ll have to pay a capital gains tax as well as the fees for the real estate agency that sells your property for you. However, you only have to pay the capital gains tax if you’ve owned the property in question for less than 5 years. In the case that you do have to pay the capital gains tax, it is approximately 26% of the profits that you make.
When you are selling a property in Italy you should seek the advice of an accountant to establish whether or not you need to pay the capital gains tax in the country of your citizenship or in Italy. The fees that you’ll have to pay the estate agent will vary and can range between 1-5% of the sale price.
Italy Has Low Mortgage Interest Rates.
If you’re planning to buy an investment property using a mortgage then Italy is a great choice. The country has relatively low-interest rates on mortgages which can be as low as 1.2%. When you compare to this the average US mortgage interest rate of approximately 3%, it really is a good deal! NOTE: These interest rates are rapidly changing because central banks in EU and the United States are increasing the interest rates to curb inflation.
This can be very useful if you’re purchasing an investment property to rent out over the long term. The lower interest rates on mortgages in Italy mean that you can make much better returns on your investment.
Many Lower Priced Properties Are Available In Italy.
When you talk about cheaper investment properties in Europe, typically you think of Eastern and Central European nations. But you can buy cheap properties in Italy also. But keep in mind that the cheaper property in a country like Georgia might be near a big city like Tbilisi but the one in Italy might be in a rural setting (I purchased mine for $65,000 in Volterra, a town about an hour from Florence and about 2 hours from Rome). If you’re looking for a property to renovate then Italy has an incredible range of apartments, farmhouses, cottages and holiday homes to choose from. When you buy a property to renovate you have total control over how the project will turn out. You can create a perfect holiday home to rent to tourists or you can simply upgrade the property to sell at a profit once the revocation works are complete.
There are, of course, certain risks associated with renovating a property so you really need to do your research in advance and make sure that you seek advice from experienced builders, estate agents or a local Geometra. Nonetheless, when you get it right a successful renovation project can net you some amazing profits in a relatively short amount of time.
Incredible Cultural And Artistic Heritage.
Italy’s long history of world-leading architecture, art and culture has led to it becoming a magnet for tourists and Expats from all over the globe. Each year, tens of millions of tourists visit the country and many of these opt to stay in short-term rental properties instead of staying in a hotel. By staying in a rental property tourists can cook their own meals and have a more authentic experience during their time in Italy. It’s also a cheaper option for families and groups of friends who are traveling together.
From the perspective of someone who owns an investment property, this represents a fantastic opportunity to capitalize on the consistent demand for holiday rentals. You can either advertise your property in Italy for holiday rentals yourself or you can employ a property management company to handle the details for you in exchange for a modest fee.
Short-term holiday rentals are able to charge much higher rates than if the property is rented out to local Italians on a long-term basis. For many investors, this is a great way to start enjoying a secure passive income from the moment that they buy an investment property.
As well as profiting from renting out the property you can also watch as the property appreciates in value over time. In this way, your investment will pay off much better than if you simply rented it to local Italians.
Of course, if you want to buy an investment property to rent to holidaymakers then you should choose the location carefully and ensure that the property is up to scratch. You should also consider installing additional facilities such as a swimming pool or an outdoor eating space so you can charge higher rental prices to tourists.
Should You Buy An Investment Property In Italy?
Italy is a good option for buying property but purely in terms of investment, there are far better countries in the European Union to buy properties in the hope of making a good profit. The smaller Eastern European economies, for example, are experiencing meteoric growth as their infrastructure is improved with EU subsidies and increased foreign investment.
This has seen incredible increases in property values which make these nations a tempting option for foreign investors. There are also much less onerous regulations and tax codes in many of the Eastern European countries which make it much easier to buy an investment property.
