BUYING A HOUSE IN ITALY - DEALING WITH THE EXCHANGE RATE
Because we're American I'll use the term dollars when talking about the exchange rate, but of course if you're coming from the UK, Australia, Canada or anywhere else in the world that isn't on the euro, remember that your currency may compare differently. I'm sure most of you are well aware of the volatility of the money markets, and in the five years that we've lived in Italy we've been on a roller coaster ride!
Whether you're considering a permanent move to Italy or would just like a second home here, the exchange rate will affect you in many ways. Your first and largest exchange of dollars for euro may be during the purchase of your new home, or it may be a continuing exchange if you're building or restoring. Don't worry about consulting the experts, because there are no experts! When we first found our house nearly six years ago, one euro cost about 95¢...maybe even a little less. The euro was still new, and the 'experts' were predicting that the euro and the dollar would eventually settle to about a one-to-one exchange rate. As we would later discover, these so-called experts didn't know their euro from their a$$!
We knew from the start that our lives would be simpler in Italy, and not just because that was the norm, but because we'd be retired and living on a fixed income. Because we hadn't saved as much as we should have, we knew we'd have to take out a small mortgage, but we figured with careful planning and controlled spending we'd be fine. I'm a saver and a bargain hunter anyway, so given everything we'd learned about living in Italy and given the 'experts' predictions for the euro, we took the plunge!
Unfortunately for us, as soon as we took the plunge the dollar took the plunge too....and kept sinking, lower....and lower.....and even lower! We were never in danger of being 'forced' to move back to the states, but we were forced to give up our plans of travelling throughout Italy and Europe....but since we loved our town and Umbria in general, it really wasn't too painful. Should we have been better prepared? Could we have been better prepared? The answer to both these questions is yes, but.....if we'd been so afraid of the decline of the dollar we might never have made the move, so in retrospect....NO REGRETS!
Perhaps you'll need a bigger comfort zone than we had. Perhaps the ever-changing rates will drive you crazy. But maybe you can learn a few lessons from our experience and be better prepared for the good as well as the bad. Here are my suggestions:
We were lucky in that Art's retirement pensions were fixed amounts, not tied to investments. No matter how much the stock market goes up or down, his Civil Service, SEIU and Social Security payments remain the same with no worries about depleting the principle. If it's possible for you to retire with something similiar and to let your investments continue to grow (or in our case, grow/shrink/grow/shrink/etc), you'll be better off. Try to determine just what your monthly living expenses will be, and don't short yourself...you know that things always cost more than you think and that there are always those unexpected costs along the way. Budget high, knowing that if you do end up with too much money at the end of the month, that's a good thing!
Once again I'll hype of merits of living in a small town like we do. Owning a luxurious villa might seem like a great idea - room for family and friends to visit, perhaps your own olive oil or wine in the fall - but in the end you may find that the upkeep of the house and the land costs more than you bargained for. Do you want to spend the time after your guests have left cleaning up, washing the linens, cleaning the bathrooms? Do you really want to be the one climbing in the olive trees each spring to prune? Do you have enough experience to tend the grapevines? Do you want to buy a tractor for tilling? If you answered "no" to any of these questions, then remember to budget for someone else to do these chores for you.
If, on the other hand, you buy a house in a village - a house like ours, for example! - all you have to do is lock the door behind you when you go, knowing that the house and the garden will take care of themselves until you return. Once you do arrive the markets will be here, just a few steps away so that you can fill the fridge and restock the pantry.
Okay, back to the money stuff. Over these past six years we've seen the euro go from 95¢ to $1.60+...and now back down to $1.20something , which seems like such a treat! Obviously no one knows what the future will bring, so in considering how much to budget I'd recommend trying to estimate your monthly costs....gas, water, electricity, property taxes, garbage taxes, cost to own a car, including the taxes and insurance, food costs, including restaurants. Will you have satellite TV? Internet connections? Think of everything you possibly can, then ask questions! if you'll be here full-time and have legal residency your property taxes (ICI) will be much lower than if you don't have residency. Some utility costs will also be lower if you're a legal resident.
After you've gotten all your estimates together do a conversion using the current exchange rate....then add in an additional 10%, or 20%, or whatever percentage makes you feel comfortable. For us the decline of the dollar took away our 'fun' money, but never endangered our daily living. Decide for yourself: what are you willing to give up? If the dollar took a nosedive could you be happy in your own home here in Italy, or would you miss not being able to travel...would you mind eating out less often? Would you miss not being able to add to your ceramics collection on a regular basis, or those trips to the designer outlets?
Although I'm sometimes labelled a pessimist, I don't agree with that assesment at all; in fact I don't like the word pessimist OR it's connotation. I prefer to call myself a realist. I think it's practical and prudent to prepare for the worst, but that doesn't mean I expect the worst will happen...I just want to be ready if it does! And if it doesn't, well, it's a pleasant surprise, and, when it comes to budgets, it can also mean an unexpected treat!
- Save Save Save! Maximize your 401Ks, take advantage of matching funds from your employer, put up with an older car, whatever it takes!
- Plan wisely. This means asking questions, visiting expat message boards, exploring the areas where you're thinking of buying. Educate yourself.
- Make a realistic budget, and include a cushion for unexpected costs as well as a dip in the exchange rate.
- Don't buy a larger house than you really need. That villa with friends and family might be nice for a few weeks vacation, but do you really need - or want - a huge property to maintain year round?
If living in Italy is high on your list of priorities then start figuring out what it is you need to know and do to make it a reality. Budget in some flexibility to deal with the exchange rate, but don't scare yourself out of your dream. As I said before, we have NO regrets about making the move! If we can do it with limited funds and declining dollars then I'm confident almost anyone else can do it too! I hope our experiences will help make your decision to buy a house in Italy just a little easier!