To invest or not invest overseas...
Written by Nick Holevas on January 7, 2019
While I love multifamily investing, my husband and I are also avid vacation rentals investors.  We are considering growing this part of our business internationally, by converting an apartment I own in an Athens suburb of Greece to a vacation rental. 

We have so many considerations to go through.  Whether investing in multifamily or single family, going internationally is something we have to research extensively, as the laws differ in each country, just like the laws for landlords differ across each state in the USA for landlords and tenants. 

Multifamily investing in Europe is more interesting as the majority of the apartment dwellings have already been converted to condominiums from the building and construction stage. Each are owned individually by homeowners and investors.  Cash flow in apartments in Europe that are burdened by a mortgage is also a thing that is non existent, as the low rents usually never cover the loan payment. 

While multifamily investing in the USA is pretty much precise and scientific, where the property is valued by the net operating income (NOI) it brings. The debt service the property can afford is valued after the NOI is determined. That is usually not the case in Europe, as cities are much more densely populated and the values go by a market value that is not comprehensible to the average American investor. Minimal cap rates are very much the norm.

Greece, which has been reeling from the effects of the financial crisis of 2008, is entering its 11th year of difficulty.  Property values plummeted, and overseas investors (particularly wealthy Turkish, Chinese, and Russians) have started pouring cash into the market, looking for the Golden Visa for entry into the European Union. 

The advent of Airbnb has also created a distortion in the market, making some property values go up, particularly in high demand areas of metropolitan Athens and Thessaloniki. More and more Greeks, fed up with the low rents locals can afford and unpredictability of receiving their rent payments on time, have turned to Airbnb with a lot of success.

There's a lot of opportunity for multifamily investors to purchase multiple apartments in coastal areas and the city centers, which are in high demand, for below market value. They must pay for them in cash, as it is still very difficult to get a loan in Greece, as the major banks are on the brink of insolvency. By not being burdened with a loan, however, a multifamily investor can create a cash flow that is much better through Airbnb, rather than renting it to a local.

Since we are considering converting my rental to a Airbnb, we have to be accountable with the tax authorities, as the first 12 thousand euros in income is taxed at 15%.  If my rental goes over that amount, we are in a completely different tax bracket, and our income is taxed at ordinary rates. 

In addition to the tax considerations, we have to follow the registration process for the Airbnb in Greece. The Finance and Tourism Ministry recently passed a bill to tax peer-to-peer property rentals as unlicensed accommodation. Fines will be imposed to owners found to be renting out their property without a registration on Greece's tax platform and if they don’t fulfill certain criteria.

Once we identify the property as a short-term rental, we will then have to register it on, Greece's online tax platform. If we fail to do this, fines of up to 5,000 euros are due. We definitely do not want to pay 5,000 euros in fines, so we will contact a local tax attorney to make sure we do everything right, before we even start the process.

Once registered, we would have to get a tax ID number specifically for that property, for us to operate the rental as a business. Then we would have to file a tax return and pay any taxes due, for the revenue received on the rental.

There are three things you must take into consideration, before investing overseas: 
1. Due diligence
2. Due diligence
3. Due diligence

Due diligence as it how it affects your US taxes and reporting requirements, due diligence as to the tax and registration process in the country you will operate, and due diligence on your comfort level. If you do not feel comfortable, DO NOT DO IT. There are plenty of opportunities in the USA!

Nick Holevas, CPA

Nick Holevas, CPA, helps multifamily real estate investors analyze deals and create awesome returns on investment for themselves and their partners, by taking over the back office, accounting, and tax headaches. If you want to get rid of these headaches and create awesome returns on investment, while maintaining your fiduciary duty to your investors and partners and staying compliant with federal and state taxing agencies, schedule your free consultation session today!
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