Find Your Escape Hatch in Italy

October 17, 2013

By: Bobby Casey, Managing Director

Middle of Nowhere, Italy – I have been to Italy many times over the past few years.  Normally the trips are focused on visiting various cities.  I’ve been to Venice, Verona, Milan, Bergamo, Rimini, Rome, Pescara and several other cities in the country.

The past week has been my first trip in the Italian countryside though.  And I must admit, I’m impressed.  I have never been too impressed with Italian cities.

Venice is cool to visit for a day or two.  It is a unique experience and something everyone should see.  But after 1-2 days, that’s enough.

It was interesting to see the balcony where Romeo made his famous declaration to Juliet in Verona. 

Milan is famous for its fashion.  Bergamo is a nice enough town.

Rimini is an overcrowded beach town.

It’s fascinating to see the Coliseum, the Forum and the Vatican in Rome.

But I could not see myself spending any significant amount of time in any of these cities, or Italy in general…..

Until this week.  The countryside is fantastic. 

The people are very friendly.  The villages are beautiful.  The food is amazing.  The air is clean.  The scenery is gorgeous. 

I’m hooked.

Last night I went to a tiny little local restaurant down a winding mountain road.  The restaurant looked like a small house.  Likely because it was the home of the restauranteurs.

The food was astounding.  The wine may have been even better. The woman running the place was very proud of her wine.  As she should be.  They grew the grapes just outside the restaurant and made the wine in the basement.

I left with a 2L bottle of wine.  Admittedly I am sipping this wine as I write this article.  And it is fantastic.

This morning I woke up and met the local real estate “mogul” and his assistant. He brought her because she spoke English and could help translate.

We toured the village looking at properties.  Take a look at a few of the images below that I took with my phone:

 

 

 

 

 

 

 

 

As an investor, my perspective is a bit different from someone looking for a place to live.  I am constantly thinking about the net cash yield (net rents – expenses / investment). 

Even when I look at properties I may be interested in buying personally, I consider the net cash yield.  Let me give you a short example of how I calculate:

Total cost	100,000.00
Potential gross income	15,000.00
Vacancies/Uncollectibles (10%)	1,500.00
Effective gross income	13,500.00
Operating expenses (10%)	1,500.00
Net operating income	12,000.00
Net cash yield	12.00%

 

Clearly I have simplified this a bit.  If you are using debt, you need to consider your debt service to determine your net cash yield.  Your expenses may vary based on property tax, insurance, property management fees, etc.  But you get the idea.

After spending several hours this morning viewing multiple properties in this small village, I believe this could be an excellent opportunity for someone looking to invest in hard assets like real estate outside their home country and at the same time earn a nice net cash yield. 

In addition, if you have Italian roots, you could get citizenship and that much sought after EU (Italian) passport. 

Let me give you a couple of examples. 

Take a look at the building below:

This building can be bought for about eur15,000.  It would cost around eur60,000-70,000 to fully renovate.  The building is about 80m2 with a 20m2 garage.  It would have 2 bedrooms with a combined kitchen and living room.  For another eur5,000-10,000 you could build your own private terrace on the roof.  The location is wonderful.

This is the view you would have:

 

 

 

 

 

 

Here is another apartment (only the 1^st floor, not including ground floor) that is in the middle of renovation.  It will be finished in about 3 months.  This apartment is in the middle of the village center.  It will have one bedroom, a combined kitchen and living room, a loft bedroom, and two bathrooms.  It will also have 2 balconies.  Total size is about 80m2.  Fully renovated cost is about eur80,000.

 

For investment purposes, these would be ideal for summer vacation rentals. This village is very popular in the spring and summer months from April – September.  People from all over Europe come here to rent for 1 week, 1 month, and sometimes more. 

The typical rent for either of these 2 properties is approximately eur100-120/night.  At eur100/night, you would only need to rent for 100 nights per year for a 12.5% gross cap rate. 

That leaves you with about 280 days per year to use the property as you would like.  The net cash yield would look something like this:

 

Total cost	80,000.00
Potential gross income	10,000.00
Vacancies/Uncollectibles (10%)	1,000.00
Effective gross income	9,000.00
Operating expenses (10%)	1,000.00
Net operating income	8,000.00
Net cash yield	10.00%

 

You can certainly play around with the numbers a bit to see variations of your cash yield. For example, maybe you rent for 120 nights per year.  Or maybe you rent to someone like my new friend, Hans, that I met at the cafe yesterday. 

Hans is a German retiree who moved to this village but chose to rent his apartment instead of buy.  He wanted a nice, quiet, simple life and loves this village. 

As mentioned before, if you have Italian ancestry, you may even be able to obtain citizenship.  For our GWP Insiders subscribers, I have interviewed my Italian lawyer who has a unique program that can fast track you (less than 1 year) for Italian citizenship if you have some ancestry rights. 

One more interesting thing about this village is its close ties to Croatia.  Once per year the Croatian government grants citizenship to any resident of this village who wants to acquire it and thus a passport in Croatia.  We will go into further details as well as connections to our real estate contacts here for our GWP Insiders subscribers.

For someone looking for a real estate investment that can generate a reasonable cash yield as well as offer you a part time residence, this little village could just be the hidden gem you are looking for.