Own a Profit-Making Home in Historic Italy
By Ronan McMahon
Take a few steps from an ancient piazza in any of Italy's major tourist centers and you could find some grossly overlooked and undervalued real estate.
Because of domestic factors like a failing economy, low confidence, and a weak appetite for real estate investing among Italians, Italy has for years been a prime hunting ground for cheap property.
Then, enter 2020 and Covid. Tourism dependent Italy takes a further battering. And the slow bleed of real estate prices turns into a gush, with price drops of as much as a third in tourism heavy cities.
In places like Rome and Venice almost half of all available Airbnb's have been pulled from the market. They're rented long-term, occupied by owners, sold, or for sale. That's half the capacity these blue-chip tourist cities had just two years ago.
And there lies our opportunity...
You don't hear anyone talking about "over-tourism" anymore, but just 24 months ago it was a hot topic all over Italy. Each year millions of tourists poured into its cities. There was a surging demand and limited capacity.
It got to the point in many of Italy's most-visited cities that tourism became a public emergency. In Venice you were bombarded with signs to keep walking, don't stop to sit down...in Rome a three-hour queue in the Vatican was normal.
The question wasn't how to attract tourists, it was how to limit the numbers.
When I asked a tour guide in Florence in 2018 when low season was, he told me it's the last couple of weeks of January.
That's it. The rest of the year was high season...or super high.
And here's the thing: Talk of over-tourism has disappeared...but Italy and all the factors that make it one of the most popular tourism destinations in the world has not.

Italy is 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...
This is a place people will always be attracted to. And when travel returns in earnest, Italy is a place where tourism will see one its quickest bounce backs.
It the meantime, we've been given a window to use this lull to buy something that's not just undervalued but also intrinsically valuable.
I believe that all great real estate investments start with a big idea. I follow Paths of Progress...focus on playing the rise of emerging middle classes...and use the psychology of crisis markets to my advantage...
Boots on the ground scouting is critical. That's why I travel six months of the year. But following the big macro trends means I know where to put my boots or where to send my scouts. And in Italy I see the convergence of compelling global trends. That's why my team and I are digging there...
Playing Long-Term Global Tourism Trends
Italy is a blue-chip tourism destination, the fifth most-visited country in the world.
In 2019, it drew in 94 million tourists, and was the third most visited country in international tourism arrivals, with 217.7 million foreign visitors nights spent.
In 2019, Italy's tourism sector made up some 13% of national GDP. According to one study by the Intesa Sanpaolo group it accounts for almost 13% of Italian jobs too.
The International Center for Studies on Tourism Economics (CISET) says foreign visitors spent $44 billion in the country in 2019—well over double what was spent this year.
And, as elsewhere on our global beat, Airbnb stays are on the rise. In 2008, there were only 52 Airbnb accommodations in Italy. In August 2019, this figure rose to over 457 thousand listings.
Of course, all these figures are pre-pandemic. If I used 2020 as a sample year it would paint a different picture...but not one that reflects just how big a player Italy is on the global tourism stage or its decades long growth trajectory. Rather, 2020 is the anomaly. The exception that proves the rule.
There won't always be a pandemic but there will always be tourism. And from the past 70 years, it's been booming...
By most measures, tourism has been one of the fastest growing industries in the world over the past half century. Prior to the pandemic, travel and tourism (including its indirect impact) accounted for one in four of all new jobs created across the world, 10.6% of all jobs (334 million), and 10.4% of global GDP ($9.2 trillion).
In 1950 there were 25 million international tourist visits, rising to 166 million in 1970, and 435 million in 1990.
In 2019 there were a record 1.5 billion international tourist arrivals worldwide, a rise of 54 million on the year before.
Travel is easier than ever before. You can do everything online from booking your flights to finding your way around a city with Google Maps. You can use translation apps, restaurant reviews and of course, book a short-term rental.
Around the world people have more money. The global middle class is growing, and travel is getting cheaper—budget airlines in Europe for instance mean getting from London to Rome can cost less than $40.
My point is, when it comes to the future of tourism, the macro evidence shows that that it's on a decades-long growth trajectory, that currently experiencing its first real dip. The pandemic has dampened enthusiasm for the industry in the short term, but long-term outlooks are as optimistic as ever.
And then there are other big macro trends at play...
The Rise of China
What could be more aspirational for a newly minted Chinese tourist than a trip to Venice, or Paris, or London.
China's rising wealth has been among the most important drivers in the huge growth of global tourism. In 2001 Chinese residents made 10.5 million overseas trips. In 2019 the figure was just over 169 million. That's an increase of 1509.52% in less than two decades.
Data shows that in 2019 only about one-tenth of China's 1.4 billion people held passports, a relatively small figure. However, it is reported that Chinese travelers spent more than $120 billion overseas in 2018, surpassing other countries. And, pre-pandemic, the number of passport holders was projected to double by 2020.
In the wake of the 2008/09 financial crisis Chinese wealth was a godsend to luxury brands and big-name car manufacturers. While westerners tightened their belts, the newly affluent Chinese began a spending spree. Many traveled overseas to buy Chanel, Rolex, and Louis Vuitton—a trip to Europe or the U.S. was a chance to splurge.
These days the reasons this new Chinese middle class travels has changed. A survey by consultants Oliver Wyman found "authentic, social, and shareable experiences are now a top reason for traveling." (The kind of experiences people seek by staying in Airbnb rentals.)
For an international real estate investor, a growing middle class can equal big profits. It's a tried and tested strategy to get ahead of demand as people seek vacations and second homes. In 2000, just 4% of China's urban population was considered middle class, rising to over 30% in 2018. A study by consulting firm McKinsey & Company suggests that 76% of China's urban population will enter the middle-income bracket by 2022.
As I've said, Italy is a blue-chip tourism destination and more than 5 million Chinese tourists went to Italy in 2018—growing by another 16% in 2019. They visit the museums of Rome, ride the gondolas in Venice, and sip espresso on the piazzas of Florence. (It's reckoned that 10% of tourist spending in Florence is from Chinese tourists.)
In March 2018 Italy became the first of the G7 countries to sign up to China's global Belt and Road project—a Path of Progress linking continents and being called "the new Silk Road." As part of the deal, the Chinese state construction company will develop the ports of Genoa and Trieste. In 2019 Chinese president Xi Jinping visited Italy along with Chinese travel companies. The CEO of Ctrip, the largest online travel agency in Asia, was there busily signing agreements with Italian tourism outfits.
According to the world's largest network of air travel data, OAG, airline capacity from China to Italy increased by 85.8% from 2013 to 2018—from 578,597 in 2013 to 1.07 million in 2018.

The China effect will super-charge tourism numbers to Italy in the coming years. But even if it didn't, the beauty of an income play in one of Italy's historic cities is that tourists come from all over. Asia, Russia, the rest of Europe and of course the U.S. You don't need me to tell you why...the cradle of the Renaissance, the home of fashion, the birthplace of a cuisine that's conquered the world, amazing views, stunning history...sun-drenched beaches, warm waters, historic hill towns and castles...
Yet, despite a surge in demand for short-term rentals and every sign of that demand continuing to grow, real estate prices in Italy have been steadily falling for nearly two decades. I don't see any sign of a reverse in this trend and on every visit I find none of the confidence that tends to go with real estate investing...
In fact, in big tourist cities like Rome, many overleveraged multi-property Airbnb owners are now completely overstretched and looking for quick sales, dropping prices by as much as a third.
That's why now is the perfect time to enter the market. The play is to pick up profitable real estate in historic Italian city for bargain pricing....then tap into the short-term rental market when tourism bounces back.
But before I get into specific opportunities let's take a look at the terrible state of Italy outside of the tourism sector...because it's the reason we can buy real estate in blue-chip global tourism destinations like Venice and Florence cheaply and bank 15% gross yields...
"The Sick Man of Europe" (Or the Next Greece)
Italy is in a terrible state. According to the government's latest economic update, Italy's debt will rise to the highest level in over a century this year, breaching the 159.5% record set in 1920.
The country has struggled since the 2008/09 financial crisis and it looks to be in a state of almost permanent political crisis. Foreign direct investment has tumbled. Throw in corruption, weak institutions, a brain drain and a lack of confidence among Italians of anything changing, and you have a potentially catastrophic crisis looming.
European banks are very exposed to Italy, especially French banks, and it's the third-largest economy in the eurozone. If Italy ever defaulted it would have enormous implications across Europe and make Greece's default pale in comparison.
I see no sign of the tide turning on the long and slow decline of real estate prices. It's why I have always found it difficult to be enthusiastic about opportunities in Italy. Italy could come apart. Or, it could pull through. If it were not for the unstoppable global trends driving the surge in tourism there would be no opportunity for us. Yet there is...real estate in Italy's major tourist centers is overlooked and offers us double-digit yields.
There's 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 is booming, sound beaten down and weary when you talk to them about the future.
Also, the neighborhoods we are looking in are overlooked. Super prime real estate in these Italians cities isn't so cheap.
But we can pinpoint neighborhoods that are perfect for our rental play and buy super cheap by focusing on old, dated apartments—those that with some work will be the perfect Airbnb and ideal as a part-time base when you want to spend time there.
What You Can Own (And How to Get It)
Italy's historic cities have relatively expensive and glamorous real estate right on the main square and boulevards—real estate the celebrities and industrialists have owned for generations. It's almost never rented or sold. It just sits there and gets used for cocktail parties when it's opera time in Verona, or the annual film festival in Venice.
The hoarders of tourist who visit Italy walk past and gaze in through windows. Walk a few blocks—10 minutes in any direction and you will find something completely different. Overlooked real estate no one wants to live in. But millions and millions want to rent...because you are literally steps from those main boulevards and attractions.
For the most part, the biggest opportunities I've found are either small one-beds of around 500 square feet or bigger three-bed condos. (Note that three beds in Venice is very difficult to find, the opportunity there is just the smaller ones.) By biggest opportunity I mean the play to maximize our yield...or percentage of the purchase price we can recoup in income each year.
The key is to find a dated property walking distance to the main attractions. Clear the clutter and pretty it up as an Airbnb.
In most real estate markets the key metric is price per square meter (or foot). That's not what we're looking for. We want to maximize yield. For example, in a market like Venice or Florence the right 350- to 500-square-foot apartment can generate as much income as an apartment double the size. The yield sweet spot is at that size...350 to 500 square feet. You want a blank canvas, too. A property that's easily turned into that sleek Airbnb pad, with minimalist décor. This will appeal to the greatest number of people. No clutter or garish wallpaper.
On my last visit to 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. It's close to the other main Florentine attractions. It's got two bedrooms and is 500 square feet.
Let's run conservative numbers: In a regular tourism year you can 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 okay. Take those 250 nights at an average of $150 a night for a total of $37,500.
In a small, restored building close to the center I came across a two-bed apartment of 484 square feet with an asking price of €175,000. I would offer 10% to 15% less than that. Say you get it for €157,000 ($172,771), and rent for around the same, 250 nights at that average of $150, that's a gross income of $37,500 or a yield of 23%.
In Venice, opposite the church of San Canciano, just a 10-minute walk to St Mark's Square I found a 538-square-foot apartment for sale for $199,000 ($218,960). I reckon spend $15,000 on a new kitchen, furniture, and bathroom...sleek clean designs...and you have a perfect Venice short-term rental.
This apartment is around the corner from the Art Café Venezia. The drinks aren't pricey as it's more a local hangout. You can pop across the road to stick your head into the church and enjoy the peace and the fine baroque paintings of Angeli and Letterini. You would have your own local bacari, the local bars tucked away all over Venice that—for a couple of bucks—offer delicious snacks called cicchetti. Savory bites like Spanish tapas.

In Rome, just a four-minute walk from Rome's big attractions, close to the train station, I have found apartments for less than €200,000 ($220,164), the same type that rent at an average rate of €225 a night ($248). With 70% occupancy—very achievable in Rome—you're looking at a gross income of €32,000 ($35,216.)
In the same neighborhood, Esquilino, I found a renovated hostel a stone's throw from the Colosseum and the Roman forum. It's got eight rooms, six bathrooms. This kind of opportunity is well worth digging into. It was priced at €299,000 ($329,145) and it's perfect for renting to bigger groups...extended families...groups of friends...even at 50% occupancy renting for say €500 ($550) a night—not hard in this location—you are looking at a ballpark gross yield of 30%. That's right, an income of €91,000 ($100,145). In fact, in my research I can find little or nothing in this niche and done right you could charge more.
And there is opportunity beyond Rome, Florence and Venice and the biggest cities...
Venice saw an estimated 25 million tourists in 2019. It's a city set to get maxed out by over-tourism and other cities and towns nearby could get the overflow. Known for its elegant 16th-century buildings, Vicenza is less than an hour from Venice. Padua is even closer and famed for frescoes, palaces and one of the largest city squares in Europe with a garden at its center surrounded by a canal.
In fact, I believe many secondary Italian cities are places we can make this same income play.

Let's take Verona as an example, a place I would consider living. Verona is stunning. I found it to be a charming, clean and classy city. It's also very walkable, and easy to scout.
Tourists come to Verona in their millions and the number is growing. The city is home to many artistic treasures, spectacular museums and it's where Shakespeare set his Romeo and Juliet.
Verona is also close to Lake Garda, and it's a hub for the wine industry. That's interesting to us because the city hosts lots of prestigious wine events and conventions yet there seems to be a lack of hotels.
The play in Verona looks to me to be three-bed apartments going for around €250,000 ($275,218) that I reckon would rent for €300 ($330) a night. These are spacious brightly lit apartments that can accommodate a group. Just like the one I stayed in on a trip with my extended family of parent and in laws. In Verona a budget of €250,000 gets your space...which you can't get for that price in historic Venice or Florence.
I was seriously impressed with Verona and could easily imagine myself spend a lot of time there.
You could also buy a one-bed condo here in the €150,000 to €200,000 range and do well...but go for size and you could double your nightly rental rate and only increase your investment by 50% thus getting a stronger yield.
This play takes boots on the ground. You have to spend time in Italy, not much of a hardship. In cities like Venice and Florence there is often a complete lack of marketing when properties are up for sale. There's only a small number of agencies in these places, often the brand name ones, who focus on selling relatively expensive stuff. Yet go two blocks in either direction you can find an apartment that with a freshen up, won't be in as nice a building but will rent as well.
The way to scout is simple: Download the Idealista app to your smartphone and start walking. You can use the app's interactive map to find real estate listings. It's by far the most effective way to home in on the type of properties we want for maximizing our yield.
It's even better if you get a city map and select a point at the center. Draw a radius of a 15-minute walk. Highlight all the main attractions and the busiest and most expensive streets and color them in.
Then you boot up, and with your phone in hand walk through the un-highlighted areas. You are looking for an apartment that's dated, unloved and at the right price...you are searching in the side streets and along the quiet little piazzas. The majority of apartments for sale won't be fit for purpose. But finding those that are is not only worth it, it's fun.
Every few minutes or so, I stop and refresh the app searching "nearby." At the same time as taking in the area and scoping out the neighborhoods, you're also able to see what's available for sale and for how much. (And you're strolling around the backstreets of Venice...or Florence...or Rome...hardly a chore. It works in every Italian city.)
The Italian way of buying, selling, renting, and taxing does not make for easy real estate plays. Even Italians find buying a property complicated. The legal system is flawed. Maze-like tax laws put off many foreign buyers. Rental income tax is high in Italy.
All told figure on costs and taxes taking 50% of your gross...but that still leaves you with a strong double-digit yield. Plus, foreigners can borrow in Italy at the kind of low rates we're seeing in other parts of our European beat.
Besides, Italy's problems can also be seen in a different light. I meet more entrepreneurial Italians in Playa del Carmen, Mexico, than in Italy. Many have fled Italy's weak economy and strangling bureaucracy. Competition on the ground is generally not very good. Many of those Italians renting are not doing the right things to maximize their yields.
The biggest driver of profits these days is giving a positive experience. This gets you high ratings, pushing you up the listings. It becomes a virtuous circle. A money-making machine. I put together a full report on how to maximize your rental yields. It's called A Lifetime of Income: How to Turn Real Estate into a Money Machine and you can read it here. .
An apartment in Venice or Florence has intrinsic value. You just can't make any more of these. There are firm barriers to entry. You can't build new apartments within the historic centers. Over time you have some renovation here and there...but no major supply increase.
Building hotels is not easy in compact, historic cities like Florence and Italy. You can't just clear a lot.
As visitor numbers increase and what they are looking for is increasingly short-term rentals, the case strengthens for investing in a small apartment walking distance to the big attractions.
The big risk with this play is regulation or taxation. Like I say, tourists won't ever stay away from Italy for long...give them what they want and they could pay for your Italian home and then some...