Investing in real estate through the acquisition of a house allows the investor to allocate their capital in a market that can provide them with a fixed, regular income in the form of rent. In Italy, the buying and selling of real estate has become a popular investment practice as tourists tend to search more and more to spend their holidays in a vacation home instead of a traditional hotel.
Given these options, as an investor it is important to understand which is the most suitable approach for your investment. In this article, we will look at the advantages and disadvantages of both options.
There are some enticing advantages to renting out a second home in Italy, both from economic and time management points of view. The most noteworthy advantages of long-term rentals are:
Secure income: through rental contracts, the property owner has a secure incoming cash flow in the form of rent. With a monthly amount set in a legal contract, the landlord enjoys fixed income which includes, as is often the case, condominium fees associated with the property.
Tax breaks: income earned through the renting out of purchased properties may be taxed a lower rate. If the rental income comes from a property with fixed-rate rent, or if rented to students, the tax rate may be as low as 10%, while the rate for rent agreed upon by both parties (landlord and tenant) may reach up to 21%.
Regular expenses paid by tenant: the landlord is not required to pay for minor repairs (so-called ordinary expenses), which must instead be paid by the tenant.
Passive income: once a rental contract has been signed, the landlord can enjoy guaranteed passive medium-term income without the need to make additional efforts to make returns on the investment.
Furnishings: landlords in Italy are free to decide whether or not to offer or include furnishings with their property and are consequently free to analyze the related costs and amortization rates.
Regarding the cons of renting a property, we cannot ignore the risks associated with having a reliable tenant. It is paramount to identify a tenant who is punctual with payments, responsible and responsive, and who will maintain the property in good condition and not cause damage or disturbance to the condominium.
For now, let’s move on to using a second home as a vacation property. After purchasing a property, a landlord may decide to use it as a micro-hospitality business by offering it as a vacation home for limited periods of time for tourists.
In this case, it is advisable work with specialized agencies which can help with the management of the property; however, there are a number of benefits to this approach:
Secure and guaranteed income: compared to traditional renting, vacation properties managed by an agency avoid the risk of default by a tenant, since the short-stay guest must pay before arriving.
More property control: since the property is occupied only in short periods, landlords can more often carry out checks on the state of the property and intervene more promptly in the case of damage or maintenance.
Higher earnings: while rent may be steady income over a longer term, vacation homes generate higher profits in a shorter period of time (linking to high season, holidays, etc.). This allows the landlord to receive larger cash flows in a much shorter period.
Flexibility: managing a vacation rental is directly related to having greater flexibility regarding the use of the property itself.
Using a property as a vacation home gives the landlord the freedom to stop renting at any time should they decide to either sell the property or re-allocate it to a child or family member without having to wait for a lease contract to end, which could potentially take years.
When considering the disadvantages of this approach, we must take into account the continuous maintenance of the property and its related costs, the need to completely furnish the property, and the regular costs of condominium fees and utilities (costs which are otherwise borne by rental tenants). One last aspect to consider is that when listing the property on major booking platforms, there is a considerable commission fee to be paid for each booking, ultimately impacting the net income.
Want to know more about these options and find out which approach would be most suitable for your next investment? Get in touch with us to schedule a consultation as well as to find the property perfect for you.
Contact us if you wish to be advised about the perfect solution for your second home.
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