I have an exciting announcement to share today! For some years now we’ve been planning to invest in a property here in Italy. Beyond our personal home. I’ve researched through hundreds of properties, with each one assisting us in narrowing down our desired purchase criteria for an investment property.
I mentioned our criteria. You ask, ‘But what criteria, what could you possibly be thinking?’ Ahhh, I’m glad you asked! Here is a peak at some of the things we were looking for in an investment.
- Limited Cash – We’re a young couple, having escaped the clutches of debt. So even though our Net Worth is growing, our personal cash potential is limited. Fear Not, there are hundreds if not thousands of properties in Italy that can be purchased for less than 50,000 Euro.
- Local market – Italy is a country about the size of Idaho geographically. With provinces all over Italy each having their own database of respective properties we will be saving time by searching through the database controlled by our local province. Other benefits include time and cost of travel, as well as knowledge of local amenities.
- Above average size – I phrase it this way because on the database, it is easy to find a property with a low price. The problem is finding one bigger than a broom closet. I exaggerate a little bit. But some people literally live in a 300 sf room. So I would call above average to be anything over 1000 square feet.
- Fix-up potential – I would love to buy a large, local, perfectly finished property at a low price. But let’s face it. It’s just not going to happen. Luckily, I love a good remodel!
As law dictates the responsibility for auctioning of the properties that are lost due to non-payment has been held by the courts. As of recently that has changed, but the courts still must systematically remove themselves of the last inventories. So, some years now, the municipalities of Italy have seen thousands of homes pass their courtrooms. Even with the change of law, giving the property control back to the bank, each province must systematically rid themselves of their previous inventory.
The process through the courts is set up so that if no one is in attendance on the date of the auction, the home will be marked as deserted and the property will be relisted at a lower price some months later. I have watched multiple properties drop from an initial auction price of over 100,000 euro, to less than 30,000 before they are picked up by some investor, family, or contractor.
There are many factors that make up a good investment. However, a profitable investment is starts at the time of purchase. Waiting for the right property is a two-edged sword. On one side, the market is moving on without you, so it is important to be ready to move at any moment. Regarding the other edge of the blade, making a move on a property with poor terms can be a devastating blow. This is one of the greatest reasons to always be diversified. One poor decision among a mixed portfolio will reduce the impact upon your entire portfolio.
Additionally as many investors know, time is a limited resource. Many have learned about the ‘Rule of 72’ in recent years. At this point I’m not sure who invented it. I’ve always said Benjamin Franklin did. However, I see some sources claiming it was Albert Einstein. (If anyone has a good source for evidencing who the creator was I’d love to hear from you in the comments.) I mention the rule because it is a good depiction of time vs money; all using the basis of an interest rate. The higher the rate, the faster your money doubles. This is one of the reasons I enjoy real estate, setting optimal purchase terms can lead to higher rates of return, thus reaping higher rates of return upon realizing the sale.
Back to us, we waited and waited. Making a few attempts on properties that were within our criteria scope, but always coming up short against the competition. Then stumbles in a property (from this point on will be known as ‘Ospedaletto’) that would test our resolve to be investors. To explain I will need explain a part of the process.
In the U.S. if I am not mistaken, to purchase a property on auction, you can find the address and go do some due diligence on your own, and if you are brave enough to speak with the current owners(which I know many that are) you could possibly see inside the home. Otherwise, you are required to make the attempt to purchase without visual proof of the interior condition.
Here in Italy, each property is taken from the owner, and responsibility is given to a custodian of the province to allow potential purchasers the ability to tour the home. Making arrangements oftentimes with the previous owners or tenants that are currently living in the property.
We make it a point to see each property as soon as possible, Ospedaletto however proved difficult to view based on our summer schedule. The week before the auction arrived and we still had yet to see the property. We contacted the custodian again and again, and finally their response…. ‘It’s too late’
Security vs Risk
After a moment of desperation and reflection on all our failed attempts, I lifted myself up and said, ‘Let’s do it anyway! If not now, when?’
Like I said, a test of our resolve. Are we going to be investors? Or aren’t we? I had seen the exterior of the property multiple times. We had done our research to the best of our abilities. What remained was stepping out of that bubble of comfort we can become trapped in, and just act!
Part II – to be continued…
Here are a few photos of our first walk by. Sure it’s a fixer upper, but all the better that way. More photos to come! Coming up will be more posts describing the next steps we will have to take. Like I said, we won the auction! But I’ll save the details of the auction day for next time. Thanks for reading!