How does an investment property work in Austria?
Are you looking for an investment property with a regular rental income? An easy buy-to-let with hassle-free management? Then Austria could be your best pick. In Austria the investment property concept is very well developed to perfectly suit the requirements of international buyers. Unlike many other property hotspots, Austria offers a stable property market with interesting property appreciation levels, solid rental yields and a strong legal framework.
If you like the idea of an investment property in a prime spot, you will most likely buy a so called "Tourist Residence", a type of property which allows for a combination of investment rental use and private use. As the way these properties work can vary from one property to another, what are the most important aspects you should look at when buying an investment property of this type?
Rental management agency - In vast majority of new-build projects, there will be one single rental management company selected by the developer to manage all of the apartments in the project, so on purchase each apartment owner will need to sign the Operating Agreement with this agency. The agreement is usually signed for a term of 10-25 years. The responsibilities of the agency are broad and include marketing & booking management, on-site guest management, cleaning, maintenance and account reporting to owners. The agency typically charges a commission for this work of c. 20 - 30% of rental revenues.
Rental yield - Your property will earn you an attractive net rental yield every year. You will receive a regular detailed report from the agency about occupancy levels, costs and results. An average net rental yield is between 3% and 6%. Some projects offer a "guaranteed yield" - this is usually a more conservative figure, but provides you with a certainty of income. Some developments are managed on a so called "pool system" - this means that revenues from all apartments are aggregated and then distributed equally among owners following a distribution key usually based on original purchase price of each apartment. In this type of management, it does not matter whether and how much your actual apartment got rented out compared to others - each owner receives an equal proportional share of income.
Sample net rental yield calculation for an investment property in Austria
Private use restrictions - The restrictions on private use vary from one property to another, but typically are 4 to 8 weeks per year plus last minute stays. Some properties can provide increased flexibility. Sometimes there can be restrictions for private use during specific periods of the year. In some properties, owners are requested to pay a discounted price for their stay - this is usually in projects with a pool system in order not to affect the overall yield of the project (so even though you pay for your stay, you will get it back with your rental income). You can usually book your stay in advance on an online platform managed by the agency.
VAT - Brand new property usually attracts 20% VAT. However, if your property has a "Tourist Residence" status, then you can save all or a large part of this amount, depending on the annual length of your private use (i.e. you can claim tax rebate for all the periods when your apartment is offered for rent to visitors). Typically, you will pay full VAT on purchase and then reclaim it back within 2-6 months following purchase. In some cases, developers have pre-arranged an easier solution for buyers, so sometimes buyers are only required to pay a small portion of VAT (e.g. 1-2%) or other times they do not pay VAT at all. Domus Global will put you in touch with a local tax advisor to assist you with the process.
Income tax on rental income - You will have to pay income tax in Austria every year on the rental income you receive from your property. But a large amount of the tax can be offset. There is a very advantageous write-off system for rented properties. If you bought your property with a mortgage, then the interest can be written off against rental income. There is also a personal tax allowance for individuals of c. EUR 2,000 per person which you can use. So if you bought your property jointly with your partner or friend, this allowance doubles. Considering the average net rental income, the amount of tax payable is very low.