Buying vacation property: Where & how to do it?

Self-use, capital investment or both: Advantages of a vacation property

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Vacation property

You're probably familiar with this: you're sitting relaxed on the beach on vacation, sipping your third cocktail and thinking to yourself, this is where it would be nice to live forever. Then you see the real estate ads in the area and think, "Why not?". But how does buying a vacation property abroad actually work? And what about financing? Don't worry, we'll clear that up today in this article.

Buying Vacation Properties: Popular Destinations for German Buyers

Before we delve into the details of the purchasing process, let's take a look at some popular destinations where German citizens like to acquire vacation properties.

Spain: A Timeless Favorite

Spain consistently ranks high on the list of coveted destinations for vacation properties. Particularly, sunny regions like Mallorca, Costa del Sol, and Costa Blanca are in high demand. The Canary Islands also attract many.

Italy: The Land of Longing

Italy exerts a magical allure, especially known for picturesque regions like Tuscany, Lake Como, and Lake Garda. South Tyrol also offers plenty of charm for property buyers.

Austria: The Alps Beckon

Due to its geographical and cultural proximity, Austria attracts some German buyers, especially to regions like Tyrol, Salzburg, and Carinthia, where numerous outdoor activities await.

America: Overseas Properties in Sunny Climes

If you dream of owning a vacation property overseas, the USA is an option. Florida and California are at the top of the list, with popular cities like Miami, Orlando, Los Angeles, and New York City.

Buying a Vacation Property Abroad: What You Need to Consider

Now that we have an overview of sought-after destinations, let's take a closer look at what it means to purchase a vacation property abroad.

Country-Specific Regulations

First and foremost, regulations and rules vary from country to country. Some nations impose restrictions or limitations on foreigners wishing to acquire real estate. An example is Denmark, which has specific restrictions on non-residents buying vacation homes.

European Union: Easier Access

Within the EU, there are typically no special restrictions for property purchases by EU citizens. This means EU citizens usually have the right to buy properties in other EU countries without requiring special permits. However, national laws and regulations may vary and change periodically, so thorough research and consultation with local experts are advisable.

Financing Your Vacation Property Abroad

Now that we've addressed the legal aspects, let's explore financing.

Residential Real Estate Credit Directive: The Wokri Puzzle

The Residential Real Estate Credit Directive (abbreviated as Wokri) can complicate financing for your foreign property. In Germany, it's customary for the property to serve as collateral for the loan. However, in most cases, German banks cannot use the foreign property as collateral. Without collateral, obtaining a loan becomes challenging.

Financing Options

There are ways to work around this obstacle. If you own property in Germany, you can use it as collateral and utilize the proceeds for purchasing your foreign property. Alternatively, you can invest enough equity to secure a personal loan without leveraging the foreign property.

The Purchase Process for Your Dream Vacation Property

Let's assume you have your financing in order and dream of owning a vacation property in Mallorca. Now, let's examine the purchase process.

Purchase Price Due and Down Payment

In Spain, it's customary to make a down payment, known as "Arras," which often ranges between 5% and 10% of the purchase price. This down payment serves as a reservation for the property and is paid either directly to the seller or to a notary. In Italy, a similar practice known as "Caparra confirmatoria" exists. This is a binding down payment, usually amounting to 10% of the purchase price, confirming the sale.

Local Approval Regulations and Taxes

In each country, additional local approval regulations and taxes may apply. For instance, in Italy, you must obtain a tax identification number. Therefore, it's crucial to thoroughly research the specific requirements of your chosen location.

Conclusion: Buying Property Abroad with the Right Partner

Purchasing a vacation property abroad can be an exciting adventure, but it involves various legal and financial aspects to consider. Proper preparation and consultation with local experts can help you realize your dream of owning a residence abroad. Whether you dream of the beaches of Spain, the vineyards of Tuscany, or the Alps of Austria, with the right knowledge and planning, your dream can become a reality.