Finding a vacation property to buy

I do not recommend buying property in Italy as an investment. I consider the prices to be too inflated and I believe we will see a correction when interest rates starts to go up. I expect a lot of properties to lose 40-50% of their current market value which are too high considering what you can get in other countries for the same money. Not all properties are likely to get hit. Properties in super premium locations and high end properties are likely to retain their price or suffer from a minor drop. However a large number of properties in less then ideal locations, in different developments etc are likely to see huge drops. People have been willing to pay crazy prices because it has been cheap to borrow money. A lot of people will need to sell their properties when interest rates go up again. This will create a large influx of properties available on the market at the same time as new buyers will be unable to afford new large loans. This will cause prices to fall dramatically.

Prices will eventual go up again but we might have to wait 15-20 years before the prices reach the same levels again. 10 years if we are lucky.

I am not saying that you should not buy a house in Italy. I am saying that you should not think about it as investment. If you buy a house it should be because you want to own a house in Italy where you can spend you vacations and where you can eventually retire.

I would personally not buy a house in the area at the moment. I prefer to invest in dividend stock until after the market correction.

With this said. Lets look at what you should think about before you buy a house

finding property

Key ready or fixer upper

I often get asked whether I recommend buying a fixer upper in Italy or if it is better to buy a key ready property. The short answer to this question is that you are almost certainly better of buying a key ready property. The long answer can be found here.

How much can you afford to spend?

It is very important that you have a budget in place before you start looking for a house and that you stick to that budget. If you do not then it is easy to start looking at ever more expensive properties and ending up buying something more expensive than you can really afford.

Calculate how much you can afford to pay on mortgage for a vacation house each month and then use that number to calculate how much you can afford to spend. I recommend that you use a considerable higher interest rate than that you currently find when calculating what you can afford. If you do not you might find it hard to afford the house if interest rates goes up. It can be hard to sell the house if interest rates go up. I recommend that you use an interest rate of 5% when calculating what you can afford.

What about rental income?

You will hopefully be able to rent your vacation house for a part of the year to be able to earn some money. You should however never be reliant on this income. Make sure that you can afford to keep the house even if you get no rental income from it. It can be very hard to correctly predict how much money you will earn each year. One year you might earn a lot, the next you might not earn more then the upkeep of the house. Consider the income potential before you buy a house but never be dependent on it.

Location, location, location

finding property to buyThe number one thing to consider when buying a vacation property that you hope to rent out for part of the year is the location of the property: A property in a charming little mountain village might be perfect for you but might not attract a lot of tourists. A property in the village might be the best buy for you. It might be the place where you would enjoy living the most. But you have to understand that you might not be able to rent it very often if you do.

The ideal location for a rental property will vary depending on where you buy it. In Rome the ideal property is located close to the sights and restaurants the tourists want to visit. In another area something more remote might be better. Try to put yourself in the mind of someone who temporarily visits the area. Why are they there. What would be the perfect house and location for someone looking to do that.

What type of tourist visit the area.

Try to buy a house that provide tourist with what they want in the area you want to buy a house in. To not buy and try to rent a luxury house in an area that mainly attract back packers that travel on a shoe string. Make sure that your property is suitable for the largest tourist group in that area. On very popular destinations you might be better of targeting a sub group of tourist that has a smaller selection of choices in your area.