In the book The 7 Habits of Highly Effective People, author Stephen Covey lists habit No. 2 as “Begin With the End in Mind,” suggesting that effective individuals must have a clear vision of their destination before embarking on any endeavor. Purchasing a property in Italy to rent is no exception.
Renting a property implies, on the financial side, greater attention on the return of our investment and, on the legal and logistical side, an understanding of the different rental contracts available in Italy, alongside the ability to effectively provide the support that tenants expect.
Let’s start with the financial side.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In my professional experience, I have seen countless buyers thinking about the rental aspect as a “cherry on top” factor. In their mind, they will buy a property they like, and they will also have the option of renting it out to an unspecified tenant and for an unspecified amount. This thinking process rarely leads to optimal results, and it must be flipped on its head.
In the spirit of beginning with the end in mind, we must first think about the different rental options and their expected yield first, to identify a model property that would fit our financial criteria. Within this newly formed group, we can then proceed to pick a property we like.
Transaction costs
In a return-on-investment-driven purchase, transaction costs matter a lot. In Italy, taxes on property purchases are higher for second homes (9%) than for first homes (2%). While the taxable amount is calculated by the Italian tax agency on a lower-than-market value figure, it can easily reach the $10,000 to $20,000 range on most purchases.
On top of that, if the purchase goes through an agent, an up to 4% plus VAT (currently 22%) professional fee will be added to the final bill. Lastly, every purchase must be formalized by a public notary, whose costs are also entirely borne by the buyer and will set you back $2,000 to $3,000 plus VAT on average. In addition, optional expenses for a property inspection, renovations and furnishing may have to be taken into account.
On top of these one-off costs, ongoing property expenses must be considered. These include the annual property tax (IMU), the council or waste tax (TARI) and the condominium expenses (assuming an apartment is purchased). The latter can be very high for properties that have, for example, a centralized heating system, elevators or reception services and are shared by every owner proportionally to the size of their property.
It is therefore very important to look at expenses for at least the past two years and to access the minutes of the condominium meetings to check if any big renovation/maintenance of the common areas (roof, facades, staircases) have been discussed, as these costs will also be shared proportionately.
How rental property works in Italy
The second step of the process requires understanding the legal framework for rentals in Italy.
To start, I would personally suggest avoiding renting out a property long term (i.e. over 18 months). Italian rental laws are extremely asymmetric and tend to protect tenants even if they stop paying rent. This situation is exacerbated by the sluggishness of Italian courts in delivering and enforcing their judgments, leaving property owners without a way to evict tenants for years.
That leaves essentially two viable options: transitory rental contracts and tourist short-term rentals.
Transitory rental contracts are an option designed to offer temporary accommodation between one and 18 consecutive months. While they do not offer tenants the same protection as long-term rental contracts, they are subject to very strict and specific conditions: Rent is controlled; only tenants with specific transitory work, health or family reasons can enter such contracts, and only a government-approved contract template can be used.
Any violation of these conditions automatically converts a transitory contract into a long-term rental contract.
The tourist short-term rental option is, generally, the one foreign owners tend to pick, as it gives them the possibility to enjoy their property while generating income when it is not used. But this is not without potential pitfalls.
In recent years, the Italian government and local administrations have increased the administrative oversight on short-term rentals, requiring licensing and authorizations from the municipality, the police and the Ministry of Tourism. Safety prescriptions have been broadened to almost match those applicable to hotels. Taxes have been increased on the income generated from the second short-term rental property onward.
None of this applies to long-term or transitory rental contracts.
About short-term rentals
Short-term rentals also require a very hands-on approach and a range of trusted providers (cleaners, laundry, handymen) to ensure an appropriate level of service. For this reason, most foreign owners rely on local property managers to run their properties, but their fees (ranging from 25% to 30% plus VAT) can dent the overall profitability of the operation, as such expenses — for Italian tax purposes — cannot normally be deducted from the income generated by the property, nor can the electricity, gas and water bills or the condominium expenses.
Purchasing and renting a property in Italy can be extremely rewarding from both a personal and a financial side, but it is a task that requires careful planning and likely the assistance of a local professional to ensure your investment will truly work for you.
Related Content
- Want to Retire Abroad? Five Things to Know About Your Money
- Five Things I Wish I’d Known Before I Retired
- The Five Stages of Retirement (and How to Skip Three of Them)
- Six Financial Actions to Take the Year Before Retirement
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 TaxesDon't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
