I am constantly asked – is it really possible to make money from Italian property? 

Surely Italian property isn't really for investment purposes, people say, it's for enjoying la dolce vita? 

Well, sure, that’s true - to an extent. 

Big profits possible

But if you want to get more from Italy than great food, warm people, wonderful summer sun and possibly the finest cultural heritage in the world, then yes, you can definitely make money from property.  In fact, you can make lots of it!

The key – probably true of any location, but especially true of Italy – is to make sure you make your investment decisions based on good research. 

Italy is not a simple country. It's procedures and practices are arcane and often confusing to newcomers.  But that doesn't mean it is impossible to find a way through the bureaucratic maze. 

In Italy, if you know the ropes, there is always a way.

Problems can be overcome

And though there are probably easier places to invest than Italy, the hassles can be worthwhile, believe me.

Certainly, there are easier and better places to raise a mortgage. 

The finance scene here is changing; but at the moment it is difficult to raise more than 50% loan to value ratio on your preferred property. 

I always advise investors to raise finance in the UK, either by using one of several lenders who now offer mortgages for Italian property purchases, or by re-mortgaging their primary home.

After considering what you can afford and how you will raise the money, your next task is to choose your location - probably one of the hardest stages of the process.

There is a lot of choice.  Every region, every province, has its own charm and appeal, eventual buyers of your investment property, and, of course, rental potential.

At the end of the day, it is a personal choice. Opt for a market that is established and already has a proven track record of producing profitable investments, such as Tuscany, Umbria, or the Italian Riviera. Or go for a longer term investment and head south and hope to find a bit of undiscovered Italy.

Less popular areas can be risky - though potential returns are excellent. However, you may have to wait until a budget airline opens them up to foreign buyers and really for prices to lift off.

Good buys everywhere

I personally advise heading for the tried and trusted markets. There are plenty of opportunities there and the main reason for choosing them is that such a variety of property is still available.  In essence, you can find a great investment in just about any part of Italy ... if you know what to look for.

So, how do you find a house?

Most people will do the obvious thing – go through an estate agent.  But, if you operate like this, two things will usually happen. 

First, you will pay for the privilege - dearly. Up to 6% commission on the purchase of a property. And the same again when you sell.

Yes, Italian agents charge buyer and seller. And don't be fooled if charges aren’t mentioned.  They wiil be included in the price, believe me. 

It's true that Italian agents do carry out more work on your behalf than their counterparts in the UK – for example, they will take care of many of  the legal aspects of buying.  But, it's still expensive.

Steer clear of estate agents

The second point though is more important: go through an agent and you're unlikely to find real bargains.

To find the real belters, you have got to do as Italians do and steer clear of estate agents.

The way to shop for a real bargain is to do it by word of mouth.  That's how things have always operated in Italy and they still do.  Such is the charm of the place. If you find this way of doing business unappealing then, quite frankly, you’d be better off investing elsewhere.

OK, so using the word of mouth method might not be an option available to you – you don't have the time, don't speak Italian and, most importantly, you wouldn't have a clue where to start.

There are a few agencies that will carry out searches for you in this way. I operate one of them. They generally charge a flat fee and aim to provide a shortlist of properties that match your desires.

So far so good.  But what makes the ideal investment property?

Renovate - if possible

Here's the trick – look for a building in a location that has potential for renovation and the possibility of adding value.   

Let me give you a couple of examples and tell you why these are great buys.

An English couple bought an old farm house on a hilltop near the village of Fontignano in Central Italy. It was an isolated rundown property of 400 square metres on two storeys.

It cost them 80,000 euros and they restored it over a period of 10 years, selling it in June 2004 for 750,000 euros to an English lawyer who is happy with his purchase.

And, in essence, he probably has got a good deal - given the capital growth of property in Italy.

Obviously you don't have to wait for such a long spell of time before reselling, it depends on whether you want to make the maximum profit and whether you have the patience to wait for the right time to sell.

Farmhouses and flats popular

Farmhouses are always in demand, but do look for alternative large and smart flats in the Centro storico of the Medieval towns.

A client of mine bought a 150 square metre apartment in Perugia five years ago for 250,000 euros. It has ten rooms and a beautiful panoramic terrace at the top. He sold it in January 2004 for 490,000 euros. I leave it to you to calculate the exact percentage of capital growth - but its clear that he nearly doubled his initial investment. Where else could you obtain 20 per cent per annum, gross.

Build contacts

Always ensure that you can have good quality, cheap renovation carried out on your chosen property.

Find a good builder, after having talked to other people who had their property renovated by him.

Arrange for an honest 'preventivo' (estimate), by showing that you know about what you want from hm and compare his 'preventivo' with at least another two.  And make sure you renovate in the way that will attract buyers.

Do not accept the preventivo at face value and have more than one appointment with the builder to discuss the ins and outs of it. Neither should you add too many difficult decorative elements as the builder may drop the whole project thinking that you are mad!  

At the same time, however, avoid being led by the builder – they often have a tendency to carry out work in the way they believe is right - simply because that is the way they have always done it.

Obviously you need the help of a geometra (the nearest equivalent is a surveyor/architect) who will negotiate for you and be with you throughout the project.  In fact, a geometra is vital for such a project in Italy.  Without one, you will almost certainly end up carrying out work illegally in one way or another, which will be problem when the time comes to sell.

To avoid spending too much on renovation do not go for the most expensive materials. What counts in the end is taste, not how much you spent on individual materials.

Retain character

Buyers will not be impressed by the bills you show to justify your high asking price. You’re better off creating a property with character that speaks for itself. 

To work out how much to spend in order to ensure you'll be able to sell at a profit you should keep the original design of the property and enhance its features. Don't build another floor at the top trying to make habitable the area under the roof or extend the property horizontally trying to gain more square metres as this may well spoil the original character of the property.

Simply restoring what you bought you will automatically have a self-limiting budget for restoration, and will almost certainly guarantee profit in the end.

The  things that you shouldn't do, because they’re not cost-effective, include installing a swimming pool. This is likely to cost you more than the increase in it creates.

It is far better to sell with permission to build a pool.  Similarly, it is often not worth installing central heating because most foreigners who buy don't even consider how cold Italian winters can be.

Also, do not buy too much land just for the romance of having an olive grove or your own vineyard. Buy a garden which is large enough to have a pool but don't try to transform yourself into a farmer as you will have to acquire all the machinery to cultivate the land and spend a lot of time on it to get the know how. If you have it looked after by a neighbouring farmer it will cost you a fortune.

Whatever you do, DON'T buy a modern property because no one (probably not even an Italian), will pay a higher price than you paid for the place.

Look for something typical of an area, with bucketloads of character.

And don't buy perfectly finished, ready-to-live in property, either.  Buyers of Italian property invariably want to add some character of their own.

Make sure you buy as 'prima casa' i.e. by registering at the local council as resident so that you can resell within five years from purchase without being taxed on capital gain. 

In this case, you pay 3% tax on the purchase instead of 10%.

Private sales best

Try to buy from a private seller. The way to do this is to approach negotiations slowly, not directly as you might in the UK or US.

Expect properties to be priced high, but find out why the vendors are selling, talk to the neighbours and find out more about the property. Go the the council and ask if it has plans for major development in the locality, or if a highway is due to be built close by.

Make sure you really understand the purchase process, or hire an independent professional to guide you through it.  Get the compromesso – the contract that binds you to going through with the sale – checked by a Commercialista (accountant), BEFORE you sign.

Check with a Commercialista how much you should declare as the value of the property - to avoid paying too much tax - and also to avoid being fined by the Italian taxman.  (The price you declare will not be the same as the price you pay for the property.  This is often a slightly shocking process to many buyers, but it is perfectly normal procedure in Italy.)

And, above all, don't rush.

Show me the money

So, how much could you make?

Well, here’s an example.  A property that was bought for 30,000 euros, had 35,000 euros spent on it for renovations and was sold for 150,000 euros, two years later.  100,000 euros profit.  

The property was a small one, built in stone and on top of a hill. It was a good buy because the location was excellent. The work carried out consisted of putting in a new floor and waterproof roof felt under the coppi tiles and by restoring the annex next door converting it from a stable to a guest house.

What about rental potential?  Well, such a property would rent for £1,500 a week for at least 8 weeks, £900 pounds for 4 weeks, and £600 for the remaining 8 weeks of a 20-week rental period. So that's a yield of 31%.  Some areas, those near winter ski resorts, for example, enjoy longer seasons.

Finally, a word of warning - if you buy a property in the countryside, find out who your neighbours are before signing the Compromesso. If they are registered farmers they have the right to buy the property from you within one year of you buying it at the price declared in the purchasing deeds.

And since that will always be a lot less than the price you paid, this is a sure way to make a big loss! Always take legal advice before signing the Compromesso!

Dr Antonioni is a qualified lawyer and accountant specialising in property law and taxation. Based in Umbria, he also operates a personalised property search service for those interested in investing in Italian property. He is happy to answer any inquiries about investing in Italian property and can be contacted at andrea.antonioni@libero.it