La Dolce Vita is About to Get a Lot Cheaper…

Your three-story home hugs the medieval wall of an Italian village. The settlement has an ancient origin, dating back to the Etruscan civilization. Your views are breathtaking. Far below are fields of vines and olive trees, and vast tracts of forest.

From this hilltop in the Terni province, you can see all the way to Tuscany and Lazio. It doesn’t get much better than this…and it only set you back $95,664.

Better still, you bought with just $38,000 down. And your Italian mortgage is only $195 a month.

This home in the medieval village of Monteleone d’Orvieto is just one of many bargain properties I’ve come across in preparation for my next scouting trip to Italy.

Like many of you who have emailed me this week with your future travel plans, Italy is high on my agenda.

The cradle of the Renaissance, the birthplace of opera, the country that gave the world Italian food… Italy is jammed with treasures, many of its cities are themselves works of art. You can wander along old Roman streets, stand in the shadow of the Colosseum, or just sip espresso with the locals. For culture look no further, enjoy Verdi in the birthplace of opera, visit the lavish home of the Pope adorned with priceless works of art…and the cities are only the start…

Italy has many small art towns, which offer great attractions…medieval gems set amongst lost-in-time landscapes, sun-drenched vineyards, olive groves, and wildflower meadows…gentle wooded hills crowned with castles and medieval villages…

Best of all, its real estate is dirt cheap…and soon to be even cheaper…

Europe has been rocked hard by the current crisis. But particularly southern European counties like Italy and Spain. This is catastrophic for their already fragile and debt-laden economies. We will see big falls in the value of best-in-class real estate. I’m figuring on 30% in Italy on prices that have been already been falling for 15 years. The value of marginal real estate in the hills and empty villages will go to zero.

The thing is, there is very little appetite among Italians to take on investments. The country and economy is sick and lacking confidence. There’s no optimism in the future. Even people working in the tourism industry, which until recently was booming, sound beaten down and weary about the future.

I don’t blame them. Italy’s economy is in a terrible state. The country has struggled since the 2008/09 financial crisis and it looks to be in a state of almost permanent political crisis.

Yet, it was, and remains, a blue-chip tourism destination, and the fifth most-visited country in the world.

True, right now Florence is empty…Rome’s Colosseum lies vacant…and the gondolas of Venice have remained moored for weeks. But they won’t stay that way forever…

And when Italy starts moving again, we’ll be there to profit.

Low real estate values, combined with high tourist occupancy (in a regular Italian tourist season), equate to substantial rental yields. Last time I visited Florence I found a completely renovated Airbnb-ready apartment for €185,000 ($203,584) close to Fortezza de Basso—the largest historical monument in the city. The 500-square-foot apartment had two bedrooms and was close to the other main Florentine attractions.

To run conservative numbers: You rent for 250 nights, just under 70% occupancy. That occupancy is extremely high in a normal market but in a place like Florence it’s only OK. Take those 250 nights at an average of $150 a night for a total of $37,500.

This current crisis is likely to see best-in-class real estate values in cities like Florence drop by 30%.

But if you’re not thinking about rental income and just want your Italian bolt-hole getaway, there is literally no lower limit to what you can buy.

I’m sure you’re familiar with the free home trend that made headlines around the world. Basically, it was a way for struggling Italian towns, experiencing mass emigration, to replenish their population and revive the local economy. Most of these homes were listed for €1 but required a minimum commitment of €5,000 to renovate.

In the wake of this crisis, we’ll see this free home trend continue, even accelerate, and move further north into the traditionally more affluent part of Italy.

My advice: don’t be taken in by the headlines. Sure, you buy for €1—and there are some decent properties in the pile—but you’ll still need to renovate. Very quickly, €1 becomes €30,000. Better to buy an already-renovated home for €30,000, where the hard work has already been done for you.

After the 2008 crisis, some of the best deals I found came from seizure auctions.

The government cracked down hard on owners who didn’t pay their taxes. And the revenue services were not shy about seizing properties.

But you needed to do your homework and buy in the right place. I personally favored locations with a strong vacationer industry, like the Amalfi Coast, Sicily, or Tuscany. Buy well at auction in any of these locations and you could do well on short-term rentals.

This current crisis is likely to turn up similar opportunities, with even deeper discounts than we saw before.

This current crisis is likely to see best-in-class real estate values in cities like Florence drop by 30%.

But you have to know how to find one of these auctions, and what to do to ensure you’re getting the best deal. Like a lot of Italian bureaucracy, buying at a seizure auction isn’t easy to figure out. But once you do, you can find a killer deal…

Take an auction property I came across in a medieval Tuscan town, as an example. It takes up the first floor of a three-story condo building, has access to its own garage, and a communal courtyard. It has two terraces. It will open for auction at €22,500 ($24,850). The local municipality recommends an extra investment of €5,000 ($5,525) to help it meet modern energy standards, though it says the building is in good condition. I’d wager it could do with an investment of €20,000 ($22,100) to give it a facelift—a total investment of €47,500 ($52,475). For a similar condo at market rate, you could expect to pay €80,000 ($88,400) more.

These are the kind of deals I’ll be watching out for in the months ahead as this crisis unfolds.

If you’re looking for your own slice of la doce vita, stay tuned. I’ll be bringing you more soon…

Wishing you good real estate investing!

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