As options for cash flow become increasingly scarce in the U.S., maybe now’s the time to look further afield?
If you’ve ever dreamed about owning a villa in the sunny Algarve of Portugal or a cottage in Irish farm country, now may be the time, especially since property ownership in many European countries can come with a path to citizenship.
In addition to the investment opportunity, the potential advantages of EU citizenship include simplified EU travel, dramatically less expensive healthcare, free higher education (with some residency requirements), and more.
What to Consider
Wherever you look to invest in Europe, you’ll want to consider the following three inputs—all of which are factored into our recommendations:
Economic and political stability
Government instability is historically bad for business. Countries with relatively stable political and economic foundations will yield more predictable results and help you sleep through the night.
Tax laws and property regulations
Some countries and municipalities will be generally friendlier to international investors than others, while some countries will have higher transfer taxes than others. Additionally, just like in the U.S., some areas have more landlord-friendly rental legislation than others.
Access to a local advisor
In every case, when you’re thinking about purchasing abroad, you will want to do so in partnership with a trusted local real estate attorney who can help you navigate the nuances of the ex-pat purchase process. In addition to an attorney, you may also elect to go through one of the many real estate companies that specifically help non-natives purchase abroad.
The Best European Real Estate Markets For U.S. Investors
How: There are no major restrictions currently for international investors.
Where: The Algarve (southwestern Portugal) is an incredible tourist destination dotted with breathtaking beaches and golf resorts. Although this is one of the most expensive regions in Portugal, it’s all relative, as the country as a whole is a great value—Portugal has one of the lowest purchase price-to-GDP per-capita ratios in Europe. Certain neighborhoods in Lisbon also present excellent opportunities.
What: Although Portugal’s Golden Visa program is sunsetting this year (a program that enabled a path to residency in five years with the purchase of 500,000 euros worth of property), prices still remain tantalizingly reasonable. Portugal is also a great potential equity play, as purchase prices have been increasing steadily over the last few years, with a most recent year-over-year growth of 13.9%, according to the Global Property Guide. Although the average rental yield (yearly gross rent divided by purchase price) for the country at large is 5.2%, yields can exceed 10% for larger units in certain parts of Lisbon.
Other advantages of investing in Portugal include a relatively low transfer tax (up to 8% of the purchase price) and a relatively low “stamp tax” of 0.08%. On a purchase of 500,000 euros (which in Algarve could be a gorgeous three-bedroom home with a view of the sea), the total tax liability (including some rebates) would be 32,964 euros (6.6%).
How: There are no major restrictions currently for U.S. investors.
Where: Parts of Barcelona, Córdoba, Valencia
What: Spain is one of the most visited countries in the world, and the rental opportunity (or the combo rental/personal vacation home opportunity) is immense. Although prices have gone up considerably in the last couple of years, Spain remains a great option for equity and appreciation plays. While average rental yields in Spain hover around 5.57%, certain neighborhoods in Barcelona, Valencia, and Córdoba can get up to 8%.
The Spanish government has taken measures to attract foreign investors by keeping the real estate taxes transparent. Buyers can expect to pay about 10% to 15% of the total purchase price in closing fees and taxes, which include a combination of transfer taxes (8% to 10%), notary fees, land registry fees, layer fees, valuation fees, stamp duty (1.5% of mortgage), and lenders commission. New builds have additional associated fees.
Spain also offers its own version of the Golden Visa program, which includes a path to citizenship in 10 years. To be eligible, investors need to purchase property valued at least 500,000 euros.
How: There are no major restrictions currently for U.S. investors.
Where: Dublin, Cork, Galway, Limerick
What: The main reason Ireland made our list is that it has some of the best rental yields in Europe. Overall, yields hover above 7%, and in certain locations, like Dublin, average yields shoot up well above 8%. Of course, these are average yields, which means opportunities to do even better than this abound with good hunting. Tax on this rental income is also one of the lowest in Europe, at around 10%.
Like any destination in Europe, it’s important to work with a local team to help vet some of the hyperlocal nuances of Ireland. For instance, Heigo Protten, a real estate expert from Global Property Guide, warns, “In Ireland, it’s important to check whether the property you are buying is in an area contaminated with pyrite, as it may cause significant damage to the property in the long run.” Pyrite can be an issue in the Dublin area (and elsewhere) and results when building materials containing pyrite swell with moisture over time and cause foundation cracks.
How: There are minimal restrictions currently for U.S. investors.
Where: Thessaloniki and Athens (specifically the Ampelokipoi and Patisia neighborhoods)
What: Certainly, Greece is a phenomenal tourist destination (accounting for 20% of the country’s GDP), and average rental yields vary widely depending on location. Nationwide average returns hover around a middling 5.41%, but these can swing upward dramatically in places like Thessaloniki and some neighborhoods of Athens to well above 8%. The Greek government has been somewhat unstable over the last decade, but the last few years have brought more calm and predictability to the rental market.
The thriving tourist market comes here to visit the incredible historic sites and beautiful islands, and as a result, short-term rentals are where it’s at (there are over 150,000 Airbnb listings in Greece). This is also because most Greeks tend to own their homes, to the tune of 72.8% homeownership in 2022, according to Trading Economics, making medium- and long-term rentals not particularly attractive strategies.
Protten notes that while opportunities abound, buyers need to be vigilant: “Any non-EU national will go through a process that is a bit more complicated to obtain the property and might be denied purchasing in some areas (e.g., border areas, or purchasing full islands).”
Live where you want, and invest where it makes sense!
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.