Between the stunning sights of the Swiss Alps and the dreamy cruises down the Venetian canals, Europe has always been a vacation hot spot. With many cities to love like Rome, Paris, Berlin, and Barcelona – is it any wonder that investors are flocking to Europe to purchase vacation rental property?
Beyond its idyllic experiences, investing in European vacation rental properties just makes sense. The 2021 real estate market is hot right now, making it a strategic time for investment. We’re stepping outside the typical city scenes and giving you the most up-and-coming investment opportunities in Europe for 2021.
How to assess value when buying a vacation rental property in Europe
For the U.S. buyer, discovering where to invest in Europe can be a bit of a challenge. Much of the real estate terminology and investment indicators don’t directly translate into what performs well on the other side of the world.
It might be commonplace outside of Europe to assess the CAP rate or other real estate markers when purchasing a property in the United States, but Europe is an entirely different ballgame. Depending on the country, many different variables present themselves, such as currency, foreign tax, and vacation rental laws. To streamline the measures for success and investability, we’ve broken our assessment into three major factors.
This is arguably the most important factor, both in Europe and internationally. There are many reasons why vacation rentals are good investments, but demand sits at the top. If demand in that area is high, your property is far more likely to get booked than a place that’s completely unknown to travelers. Demand for vacation rentals can be assessed in numerous ways. Vacancy rates, Airbnb occupancy rates, average daily rate (ADR) all help to determine if an area is popular for travelers or not.
Many prospective buyers are tempted to head straight for the coast. While beach vacation rentals are a good investment, investors must be wary of their seasonality. If you’re ill-prepared for a slow season, you could end up losing more than your initial investment.
Ideally, your vacation rental should have consistent income throughout the year. Destination locations that aren’t weather-dependent and cities with tourists year-round create a more consistent flow of income and may be better suited for new investors.
This is a riskier measure, as you’ll never know your true return on investment, or ROI until the deed has been signed and the house purchased. Fortunately, there are ways to evaluate the worth of your investment before making the final decision.
Quite simply, ROI can be calculated by subtracting your earnings from your initial investment. In practice, it’s hard to tell what those earnings are before you open your doors for business. Getting a rough estimate of what you would earn helps you to not go into an investment blindly.
By looking on listing sites and taking note of what the average price per night is in the area for homes similar to your potential property, then factoring in how many nights on average you anticipate your property to be booked, you can have a vague idea of what the raw income would look like. Subtract that against your overhead and cost of investment and you can have a better feel as to if the investment is worth it.
These numbers are ever-changing, fluctuating, and complex to track, so consider implementing vacation rental software that has built-in accounting tools to help you better manage your investment.
Top vacation rental markets in Europe for 2021:
Now is a better time than any to profit off this incredible moment for investing. Vacation rentals in Europe are hotter than ever right now. The culmination of reasonable interest rates and home prices following the 2008 crisis recovery and the urge of many travelers to return to travel after the height of COVID-19 makes for a booming vacation rental market.
If you’ve been eyeing out a vacation rental investment in Europe but you’re unsure where we’ve got the top ten locations perfect for you. We’ve analyzed our own customer data to see what locations have been picking up and gaining traction and put this against housing prices, vacancy rates, and other measures for gauging investment. Which of these ten cities will be home to your next vacation rental?
Rental Tax Rate
Median Home Price
Vacation Rental Occupancy Rate
Andorra la Vella, Andorra
15 to 45%
1. Funchal, Portugal
Situated in the heart of Madeira, one of Portugal’s most popular surf spots, Funchal is making waves in the property investment field. Like a younger brother to some of Madeira’s larger towns, popularity is spreading beyond the city centers and into small towns like Funchal.
Portugal, at large, is a widely popular vacation rental investment location due to its foreigner-friendly investment laws and extremely reasonable tax rates. Currently, Portugal offers a ten-year tax-free period for its residents. This is a great opportunity for new investors fearful of the hidden fees and taxes associated with purchasing a vacation property.
2. Shanklin, England
Although Brexit was a serious hit to intercontinental travelers, it caused a shift to more domestic travel for British residents. Instead of sifting through paperwork, new regulations, and visas, many Brits are opting to vacation in their own background, causing a spike in popularity for beach towns like Shanklin. This cute, English town is located on the Isle of Wight, which has traditionally been a top vacation spot for the British for years.
The important thing to note is that England doesn’t have a flat tax rate for rental income. Instead, taxes are based on earned income brackets, so if you’re planning to purchase a vacation rental that you only rent out occasionally, this might be a fabulous location for you. The lower tax bands are fairly generous for short-term rental owners but increase as your income goes up.
3. Marseille, France
Marseille blends the beauty of French architecture, cuisine, and culture while offering a gateway to the Mediterranean. Thanks to its duality of pleasant summer weather and perpetual cultural charm, Marseille benefits from having year-round tourism.
This is a perfect investment for the owner who would like to keep bookings coming throughout the year. Further, there are plenty of promotion opportunities and partnerships with local businesses, as Marseille is packed full of things to do and Michelin-star restaurants to dine in.
4. Formentera, Spain
Marseille might be a gateway to the Mediterranean, but Formentera is the Mediterranean. This dazzling little island remains completely unspoiled while being only a hop and a skip from one of the largest Balearic Islands, Ibiza.
Purchasing a property in Formentera eliminates the need of having to advertise your vacation home almost entirely as this island benefits from the notoriety of Ibiza but with a more luxurious feel. You can anticipate quality guests and major income when you purchase a vacation home in Formentera.
5. Gierle, Belgium
After the height of the pandemic, many vacationers sought revenge travel by ditching the cities and heading off the grid. Gierle is the hidden spot that many tourists are seeking. Beyond its out-of-the-way charm, it’s a killer investment for a number of reasons.
Gierle is one of the more affordable Belgium cities, so if you want to invest in a Belgian chalet without such a hefty price tag, this town offers an excellent option. It’s not too far from the city of Antwerp, meaning that you can easily attract tourists from the town over for a quiet getaway.
6. Ballstad, Norway
Ballstad is the location for adventure lovers. Because of its impressive terrain, it’s known on a global scale. You can be sure to reel in guests locally and internationally. Further, all the charm is outside, so you won’t have to exhaust yourself with interior design or indoor amenities (although that doesn’t mean it’s not still important!).
Norway has all the perks of being European without some of the economic disadvantages. Norway is not a member state of the EU, but it does have excellent travel and tourism agreements with the neighboring countries. What’s this mean exactly? EU tax regulations don’t strictly apply, but EU tourists can still freely enter.
7. Andorra la Vella, Andorra
Besides the breathtaking views, most people purchase property in Andorra for one major reason: the taxes. The tax system in Andorra is extremely favorable, meaning that it attracts permanent residents and tourists alike.
Many of Andorra’s visitors are willing to make some luxurious splurges, as this tiny country boasts some of the most extravagant ski resorts in Europe. Lodges and ski stays maintain extremely high average daily rates, meaning a higher income for your business if you choose to make the investment.
8. Sardinia, Italy
Italy, in its entirety, is one of the most internationally recognized tourist destinations. With famed cities like Rome, Milan, and Venice; Italy is already well known in the travel community. Sardinia receives second-hand publicity without some of the nuisances accompanying big-city tourism, like over-regulation, sky-high tax rates, and unfriendly vacation rental laws.
9. Sylt, Germany
When you think about Germany, what do you imagine – marvelous cathedrals, traditional breweries, or winding brick roads? For many locals and tourists from neighboring countries, they think of the beach! Sylt is one of the best natural escapes in Germany and one of the only islands in the country.
Some of Germany’s most expensive homes are on the island of Sylt, and it’s obvious why. Beyond its beautiful surroundings, Sylt easily attracts luxury tourists with its high-end offerings like fine dining and wellness centers. Sylt is the Deutschland Hamptons, so if you’re looking to break into luxury travel, then this is the place for you.
10. Crete, Greece
Although not necessarily an up-and-coming discovery, Crete still makes the list for numerous reasons. Beyond its natural wonder, Crete is also an excellent option for newcomers to the vacation rental investment industry.
Greece suffered largely after the 2008 housing crisis and numbers are still crawling back to a normal rate. As a result, interest rates, tax, and housing prices are still lower than their European counterparts. The housing market is still gaining momentum, but demand is better than ever in Crete.
If Europe has been high on your wish list for a vacation rental investment, then consider one of these top ten destinations. Finding a balance between a beautiful location and competitive pricing, you’ll find that any one of these ten towns will make you some serious vacation rental profits.
Once you make the jump to buying a vacation rental property in Europe, you’ll need software to run your business. Manage your bookings, connect with major OTAs like Airbnb and Vrbo, and create your own website from one convenient place. The first step is to buy the property and the immediate second is to implement Lodgify’s state-of-the-art vacation rental software.
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