Author Topic: Keep money at Vanguard or buy apartment? How to deal with "wealth tax"  (Read 872 times)

Hula Hoop

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I need some advice from my fellow mustachians.  I recently found out that Italy imposes a 0.15% "wealth tax" on all assets held by its tax residents outside Italy.  I'm an American expat in Italy and have always sent my savings back to the US where I invested them in my Vanguard account.  I did this because investing in a foreign country is very complicated for US citizens due to FBAR and FATCA. I have an IRA and a taxable account at Vanguard. 

I just found out about this wealth tax and have taken steps to comply with it.  Apparently, the tax only applies to assets held outside Italy so now I'm thinking about bringing my non-IRA money to Italy and investing it here to avoid the tax.  I will still have to pay it on the IRA but it seems silly to keep paying it on my taxable account.


My husband and I are now thinking about buying a second, small investment apartment here in our city in Italy.  The alternative would be to invest the money in the stock market via Degiro.  My husband works in the tourist trade and we would rent out the apartment AirBNB style to tourists in our town.  My husband has 20+ years of experience in tourism so he knows how to do this and make it work and also how to comply with licensing requirements.  The only issue is that he is a bit nervous that they will change the rules to limit the number of AirBNB apartments here as they have already done in Amsterdam, Barcelona and various other European tourism hotspots.  If this happens, I figure we can always just rent out the apartment the normal way - to students or others.


The real estate market here has been falling steadily for years but IMO it may have finally hit rock bottom and may improve soon.  But meanwhile, my husband says, we can earn money with the apartment so the apartment as an investment doesn't really matter.


Any advice or thoughts on this?

mozar

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Re: Keep money at Vanguard or buy apartment? How to deal with "wealth tax"
« Reply #1 on: September 02, 2018, 05:54:42 PM »
I was all for it until you said real estate has been falling for years. What are the factors in that? If it's because of an ageing population it might be hard to sell later.

Imma

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Re: Keep money at Vanguard or buy apartment? How to deal with "wealth tax"
« Reply #2 on: September 03, 2018, 03:04:00 PM »
If I were a US citizen living in Europe, I would try to make sure to invest both in EUR and in USD, so when you get to the withdrawal stage, you can withdraw from the account that gives you the most value for money.

I think you've said before that your husband is not interested in investing. If he's experienced in tourism and you are in a part of Italy where tourism is a thing, buying a place to rent out sounds like a better idea than putting the money in a savings account. Italy is not known for it's strong economy or real estate market, but the tourist industry is not dependent on the Italian economy. In fact, during an economic downturn I think many European tourists are more likely to go on "cheap" holidays to countries like Spain and Italy instead of far-away destinations.

I don't know much about Airbnb but from what I've heard, local governments want to crack down on people using that website because many people rent our their residential properties and don't have permits, don't inform the landlord / mortgage lender, break health and safety rules, aren't insured, avoid taxes, etc. If you rent our a holiday home as a business, get all the permits and paperwork in order I don't think it's that risky. Airbnb would just be one way of finding customers. We have booked self-catered apartments owned by professionals several times now through Airbnb and we've had some really good experiences. I don't want to stay in someone else's home but I prefer to stay in a place that has a kitchen.  If you are in a region where tourism is big, maybe there are some government agencies that can help you find out what kind of permits etc you'd need to arrange.

Renting out to tourists would be lucrative because the rents you can ask are so much higher than the rent you can get from a long-term tenant. According to google, privately renting out an apartment to tenants is unlikely to give good returns in Italy, so you'd have to be sure converting to a holiday let is legal before you buy.