How do I set up a vacation rental in another country?

According to Statista, the global vacation rental market is expected to yield a revenue of $105.70 billion in 2025, with a projected growth of 4.41% over the next four years.

In addition to rental income, other benefits such as tax benefits, potential equity appreciation, and dual usage as a getaway make setting up a vacation rental a compelling option for savvy investors.

While competition is rife, you can succeed with the proper planning and execution.
This article provides a step-by-step guide to setting up a vacation rental in a foreign country.

According to AirDNA, a company that tracks data in the short-term rental market, vacation rental properties make about 67% more than long-term rentals.
According to many analysts, vacation rental owners should expect a profit margin of 10% to 20% annually.

While vacation rentals are generally profitable and sound investments, certain factors contribute to the potential profit of each property.

These factors include:

• Location: Locations with better amenities or closer proximity to better attractions yield more profit.
• Property management: Better-managed properties lead to more satisfied customers, better reviews, and more income.
• Marketing: Selling and marketing the rental property via multiple channels and committing resources to optimizing your listing also impacts income and profitability.
• Competition: This point further buttresses the need for effective marketing in the face of continuous supply and potential oversaturation in specific locations.
• Property condition: Standout features like a spa, swimming pool, in-house gym, etc., can serve as a differentiating factor.

Can I own a vacation rental property in another country as a foreigner?

Many countries worldwide, including Europe and South America, permit foreigners to own vacation rental properties.

Nevertheless, there may be certain restrictions depending on your nationality and the local jurisdiction you’re eyeing.

When deciding where to buy a foreign rental property, you must consider the following factors:

• Seasonal demand
• Country and local regulations regarding rental properties
• Taxes like income tax and property tax
• Potential operational expenses
• Regulatory stability in the foreign country
• Local peak and off-peak rates

Setting up a vacation rental in another country is not necessarily complex but requires thoroughness, clear vision, and impeccable execution.

The steps for successfully setting up a vacation rental business in a foreign country include:

Step 1: Preliminary research

We recommend beginning your research on a clean slate. Data must inform your chosen location. Ideally, the country and locale should enjoy a constant stream of yearly tourists, not just seasonal traffic.

The location should also have good infrastructure and support diverse experiences like surfing, mountain climbing, clubbing, cultural attractions, etc.

Consider the availability of public transportation, restaurants, and shops and also assess safety, cleanliness, and the neighborhood's reputation.

Some countries that fit this bill include Portugal, Greece, Spain, France, Italy, Ireland, Poland, Austria, and the Netherlands.

We have dedicated guides for buying properties in many of these countries. You can find these guides here.

Step 2: Understand local laws and regulations

Every country has its own rules for foreign property ownership and rentals. Some countries have restrictions on foreigners buying property. So check if someone from your nationality can own properties in your preferred destination.

Other countries may require specific permits to operate a vacation rental. Check if you’ll need to acquire a business license and the steps and requirements for registering with local authorities.

In addition, research zoning laws, tax obligations, and short-term rental regulations. Some cities may limit the number of days you can rent out your property.

For example, Vienna limits renting out a property to tourists for a maximum of 90 days yearly.

Those in Paris can only rent out their primary residence for a maximum of 120 days per year, while secondary homes can only exceed 120 days per year if registered as a “tourist accommodation.”

All these nuances across different countries and jurisdictions exist, and doing your due diligence will help you choose the location that best fits your financial goals.

Step 3: Study the market

Now that you’ve settled on a country and expanded your search by choosing a city or locale within that country, the next step is to study the local market to fine-tune your plans further.
In this phase, you’re trying to identify trends, opportunities, and potential risks.

The type of questions you’re seeking answers for include:

• What types of properties are most popular or have great reviews in the area?
• Who are the typical tourists that visit the area? Families, couples, or solo travelers?
• What amenities do guests expect in this area?

You can use platforms like Airbnb or Booking.com to analyze the current rental properties in the area. Pay particular attention to pricing and reviews on other listings. Use negative reviews to identify what guests want and to spot opportunities for differentiation.

Many local tourism reports also provide detailed demographic data that can inform your choice of property and marketing plan.

Step 4: Plan your budget

There will be two separate budgets. One is for the outright purchase of the rental property, which we are discussing here. You must draft the other after you’ve taken ownership of the property.

At this stage, the detailed budget will include:

• Average property purchase price per square meter in your preferred location
• The range of property value you can afford
• Local taxes
• Land title registration and transfer fees
• Notary and legal fees
• Agent fees if you plan to use one
• Potential currency exchange margins

Step 5: Choose the right property

The next step is choosing the right properties that align with your budget and the preferences of your target audience. You can utilize a platform like Properstar to filter properties based on your requirements.

You may need to identify as many as 10. Two primary reasons for doing so are that you may be outbid on some of your desired properties, and some will fail inspection.

You may also need to compromise by broadening your search radius to accommodate your budget.
We recommend not deviating too much from your initial search radius. Remember, you chose that area because of your income potential.

If you deviate from the initial plan, ensure the new area has proper infrastructure and amenities similar to the previous location.

Note that at this point, you’ll likely be working with local agents who can represent your interests on the ground.

After inspections and agreeing provisional terms with the property owner, you may have a shortlist of 2-3 properties. At this point, we advise consulting your initial research to determine the property that most matches your findings.

Step 6: Handle all legalities

Here’s what this step may entail:

• Verify that the property title is clean and free of liens and disputes.
• Ensure the seller has the legal right to transfer ownership.
• Confirm the property is in an area zoned for short-term rentals.
• Open a foreign bank account if required.
• Secure proper insurance
• Draft rental agreements, house rules, payment terms, and cancellation policies (this can come much later, but since you’ll need a lawyer for some of the tasks mentioned above, it’s prudent to cover every legal-related task at once.)
• Obtain short-term rental permits and tourism licenses

Note that the exact process varies per country. It is, therefore, essential to engage the services of local professionals (a lawyer, a tax professional, surveyors, and foreign real estate agents) experienced with vacation rentals to ensure you’re compliant with local laws.

Step 7: Renovate and furnish

Once you’ve completed your due diligence, made the payment, finalized agreements, and taken possession of the property, you can move on to the next phase, renovation and furnishing.

In this step, you’ll also need to defer to your research to help provide a clear vision for the design upgrades you want to implement.

For example, if your research shows that many tourists come in groups, you may create an open floor plan with large common places to accommodate such traveling parties.

When designing the space, you’ll also need to consider regulations such as maximum occupancy. We recommend using smart home devices, such as smart locks, thermostats, and outdoor cameras, to monitor the property remotely.

Imagine how your guest will spend their time indoors and what you can incorporate to stand out amongst similar listings.

Step 8: Set up property management

You’ll need to employ the services of a local property management company since it’ll be difficult to manage the property remotely.

You can handle bookings and initial guest communication, but ongoing maintenance and guest check-ins and check-outs require boots on the ground.

When choosing a property management company, look for:

• Experience with vacation rentals
• Understanding of the local tourism market
• Portfolio size to the size of the company
• Total years of experience
• Reputation, reviews, and references

The company will likely assign you a property manager who you’ll work with to create schedules for regular tasks like lawn care, pool cleaning, or HVAC servicing and procedures for making emergency fixes.

You’ll also need to sign up and set up tools like channel managers that make syncing your property’s listing across platforms like Airbnb, Vrbo, and Booking.com easy and guest management software for managing guest communication, check-ins, and reviews.

Step 9: Market your rental

Here is how:

Perfect your listings

The first step is to hire a professional photographer to take stunning, high-quality photos that showcase your property’s best features, such as the living space, bedrooms, kitchen, outdoor areas, and outstanding additions like a spa or oceanfront.

The next step is to engage a copywriter to write a compelling description of the space that prompts people to take action. The description should emphasize the rental’s benefits and why it is ideal for guests, particularly your target audience.

The description and pictures create a captivating listing that you can publish on multiple booking platforms, such as Airbnb, Vrbo, Booking.com, and Expedia.

You may also build your private dedicated website to book guests directly, but we recommend starting with these platforms to gain momentum. Ensure you provide essential information like the number of rooms, maximum occupancy, amenities, and house rules in your listings.

Build a strong online presence

Create dedicated social media channels and share beautiful visuals of your vacation rental on Instagram, Facebook, and Pinterest. Post regularly and use ads on these platforms, particularly during peak season, to reach your target audience.

Offer incentives early on

Due to the lack of reviews, offer incentives like discounts, freebies, and extra days to encourage people to try out your vacation rental and leave a review after checking out.

Email marketing

Build an email list of past and potential customers and send them occasional newsletters with special offers like discounts for early bookings, long stays, off-season visits, or local events lined up for each season.

Optimize for search engines (SEO)

Help your property appear in online searches by optimizing your listings and website with keywords that capture your potential guest’s search intent. For example, “Family-Friendly Farm Stay in Switzerland” is very specific and would likely reach your target audience better.

Step 10: Continuous optimizations and regulatory compliance

As you learn more about your ideal guests and what they want, continue to tweak your listings. Lastly, keep up with local regulations and tax requirements to avoid penalties.

Any income from rental property abroad must be reported on IRS Form 1040 Schedule E. This income is taxable.

Can the foreign tax credit be applied to income from overseas rental properties?

Yes, most of the time. If you rent out your property in another country, you’ll usually pay taxes on that rental income in the country where the property is located.

At the same time, you’ll also need to report that income and pay taxes on it in the US. The good news is that the Foreign Tax Credit lets you reduce your US taxes by the tax you already paid to the foreign country.

For example, if you paid $100 in taxes on your rental property abroad, you can generally subtract that $100 from what you owe in US taxes.

How do I report income from foreign rentals?

You can report income from foreign rentals in Schedule E – Supplemental Income and Loss of Form 1040.

What are other additional reporting requirements for U.S. taxpayers with foreign rental properties?

Additional reporting requirements include:

• You must provide all income and expenses in US dollars.
• If you have income from properties owned by a US LLC with multiple members or a foreign corporation, foreign partnership, or foreign trust, you will need to fulfill additional filling and reporting obligations.
• You may need to follow FBAR reporting requirements if you receive foreign rental income via a foreign bank account.
• If the rental property is held through a foreign corporation, partnership, or trust, you may also need to report the structure of your business’s legal entity on a FATCA report (Form 8938).

How do I depreciate overseas rental properties?

In the United States, depreciation of foreign residential property is done over 30 years. Here’s a simple example:

John owns a rental property in Spain.

• The property is worth $500,000, while the building itself is valued at $300,000.
• John can depreciate the $300,000 building value over 30 years, which gives him $10,000 ($300,000 value divided by 30 years) in annual depreciation.
• He earns $25,000 a year in rental income but has $15,000 in deductible expenses for the property, leaving $10,000 in taxable income.

When John factors in the $10,000 depreciation, his taxable income becomes zero. This means he doesn’t owe any taxes on his rental income for the year.

Common pitfalls to avoid include:

• Setting up vacation rentals in an area with poor or declining tourist traffic.
• Buying properties in areas lacking essential amenities, high crime rates, and poor weather.
• Not listing on multiple booking platforms or creating personal booking websites.
• Not hiring local professionals and trying to manage everything remotely.