Financial Preparation

• Determine your total investment budget (property + transaction costs + reserves)
• Establish a currency exchange strategy (ISK is volatile compared to USD/CAD)
• Research historical ISK/USD or ISK/CAD exchange rates to identify favorable timing
• Set up international wire transfer capabilities with your home bank
• Consider setting up an Icelandic bank account (challenging for non-residents)
• Evaluate tax implications in both Iceland and your home country
• Assess financing options both locally and in your home country

Market Research

• Identify target regions based on investment goals (capital growth vs. rental yield)
• Research neighborhood-specific price trends and rental yields
• Join online forums for expatriates and property investors in Iceland
• Subscribe to Icelandic property market reports
• Analyze infrastructure projects and tourism development zones
• Research tenant demographics and rental demand in target areas
• Plan a preliminary market visit to evaluate areas firsthand

Professional Network Development

• Connect with Icelandic lawyers specializing in property purchases for foreign clients
• Identify real estate agents with experience serving international clients
• Research property management companies in your target market
• Establish contact with currency exchange specialists
• Find an Icelandic-based tax accountant familiar with non-resident investor concerns
• Connect with building inspectors for property evaluations
• Consider mortgage brokers if financing will be required

Expert Tip: The Icelandic property market is highly seasonal, with limited activity during the winter months (November-February). Summer months offer the best opportunity to view properties in optimal conditions, especially in remote areas where winter access may be challenging. However, winter can offer better negotiation potential due to fewer competing buyers.

Legal Consideration: Non-EEA investors may find it advantageous to establish an Icelandic company when the investment is clearly for business purposes, as this can strengthen the case for permission from the Ministry of Justice. An established Icelandic business entity demonstrates commitment to the local economy and typically faces fewer restrictions than individual foreign investors.

Banking Setup

• Icelandic Bank Account Options:
  • Major banks: Íslandsbanki, Landsbankinn, Arion Bank
  • Account opening difficulty: Challenging for non-residents without Kennitala
  • Required documentation: Passport, proof of address, source of funds documentation
  • Basic requirement: Kennitala (Icelandic ID number)
• Typical Requirements:
  • In-person meeting (some exceptions during pandemic)
  • Evidence of connection to Iceland (property purchase intent may qualify)
  • Proof of income
  • Tax documentation from home country
  • Substantial initial deposit often required for non-residents
• Alternative Approach: Many foreign investors complete property transactions using their lawyer’s client account and establish banking arrangements after purchase is complete. International money transfer services can be used for ongoing property management.

Financing Options

While cash purchases are most common among foreign investors, financing options include:

1. Icelandic Mortgages for Foreign Nationals:
   • Availability: Limited and typically requires significant local ties
   • Deposit Requirements: 30-50% for foreign buyers
   • Interest Rates: Variable or indexed to inflation, generally higher than North American rates
   • Term Options: 25-40 years, often with inflation indexation
   • Documentation: Extensive, including credit history, income verification, tax returns, bank statements
   • Key Requirement: Kennitala and typically local income or substantial assets
2. Home Country Financing:
   • Refinancing existing properties in North America
   • Home equity lines of credit (HELOCs)
   • Portfolio loans against investment accounts
   • International investor loans from specialized lenders
   • Often provides better rates than Icelandic options
3. Seller Financing:
   • Occasionally available in private transactions
   • Terms negotiated directly with seller
   • Requires legal expertise to structure properly
   • Less common but worth exploring in certain situations

Currency Management

The Icelandic Króna (ISK) can fluctuate significantly against the USD and CAD, creating both risks and opportunities:

• Exchange Rate Considerations:
  • Historically volatile currency with significant movements
  • Capital controls were imposed after 2008 crisis (lifted in 2017 but caution remains)
  • Currency risk can significantly impact total return when measured in USD/CAD
• Currency Services:
  • Specialized services like Wise, OFX, or Moneycorp typically offer better rates than banks
  • Forward contracts can help manage risk for large transactions
  • Regular payment services for ongoing costs if maintaining property remotely
• Income Repatriation:
  • No current restrictions on moving rental income out of Iceland
  • Tax compliance is essential before transferring funds
  • Consider timing of transfers to optimize exchange rates

Currency management is particularly important in Iceland, where the Króna has experienced significant historical volatility. A 10-20% movement in exchange rates is not uncommon over a 1-2 year period, which can substantially affect your effective purchase price and ongoing returns when measured in your home currency.

Property Search Resources

• Online Property Portals:
  • Morgunblaðið Real Estate – Major newspaper property listings
  • Vísir Real Estate – Popular property portal
  • Reykjavík Real Estate – Properties in the capital region
  • Fasteignir.is – Nationwide property listings
• Real Estate Agencies:
  • Eignamiðlun – One of Iceland’s oldest agencies
  • Fold Fasteignasala – Established agency with international client experience
  • Miklaborg – Major agency with English-speaking agents
  • 101 Reykjavík Fasteignasala – Specialized in central Reykjavík properties
• Property Auctions:
  • Nauðungaruppboð – Court-ordered auctions (higher risk)
  • Útboð – Property tenders for new developments
  • Requires local legal support to participate effectively
• New Developments:
  • Pre-construction purchases in new developments
  • Often marketed directly by development companies
  • May offer better value but longer timeframe to completion

Property Viewing Trip Planning

For overseas investors, an efficient property viewing trip is essential:

1. Pre-Trip Research:
   • Identify 8-10 potential properties before arrival
   • Schedule viewings in advance (the market moves quickly for good properties)
   • Research neighborhoods thoroughly online
   • Arrange meetings with lawyers, agents, and potentially lenders
2. Trip Logistics:
   • Plan at least 5-7 days on the ground
   • Consider seasonal conditions (winter viewing may be limited in some areas)
   • Rent a car for accessibility to multiple locations
   • Schedule viewings in geographical clusters to maximize efficiency
3. During Viewings:
   • Take detailed photos and notes
   • Ask about heating systems and insulation (critical in Iceland)
   • Inquire about geothermal/volcanic risk
   • Check internet connectivity and mobile reception
   • Note proximity to tourist attractions if planning short-term rentals
4. Consider hiring a local guide or consultant who can:
   • Provide cultural and market context
   • Help navigate language barriers during viewings
   • Offer insights on neighborhoods and potential issues
   • Connect you with trusted local professionals

Property Evaluation Criteria

Assess potential investments using these key criteria:

• Location Factors:
  • Proximity to tourist attractions (for rental potential)
  • Public transportation accessibility
  • Winter access considerations (especially outside Reykjavík)
  • Services and amenities availability
  • Development plans for the area
  • Natural hazard risks (flooding, volcanic, geothermal activity)
• Building Quality:
  • Construction materials and insulation quality
  • Heating system type and efficiency (geothermal is preferred)
  • Age and condition of property
  • Energy efficiency rating
  • Plumbing and electrical systems
  • Potential maintenance or renovation requirements
  • Mold or moisture issues (common in Icelandic climate)
• Rental Potential:
  • Historical occupancy rates in the area
  • Tourist traffic (for short-term rentals)
  • Comparable rental rates
  • Seasonal demand variations
  • Local regulations regarding short-term rentals
  • Competition from hotels and guesthouses
• Financial Considerations:
  • Price per square meter compared to area average
  • Current and historical price trends
  • Property tax assessment and rates
  • Insurance costs (including natural hazard coverage)
  • Utility costs (heating can be significant)
  • Potential for value-adding improvements

Expert Tip: In Iceland, heating costs can vary dramatically depending on the property’s location and heating system. Properties connected to municipal geothermal heating systems (common in Reykjavík and other urban areas) typically have much lower operating costs than those using electric heating. This differential can significantly impact rental returns and should be carefully evaluated during property assessment.

Legal Due Diligence

• ✓
  Title Verification: Confirm ownership through the Land Registry (Þjóðskrá Íslands)
• ✓
  Cadastral Information: Verify property boundaries and registered area
• ✓
  Encumbrances Check: Identify any mortgages, liens, or other claims
• ✓
  Planning Permissions: Verify compliance with zoning and building regulations
• ✓
  Rights of Way: Identify any easements or access restrictions
• ✓
  Municipal Regulations: Check local rules affecting property use
• ✓
  Tax Assessment: Review property tax valuation and historical payments
• ✓
  Utility Connections: Verify all utilities properly connected and registered

Physical Due Diligence

• ✓
  Property Inspection: Hire professional inspector familiar with Icelandic construction
• ✓
  Structural Assessment: Evaluate for earthquake/settlement damage
• ✓
  Moisture/Mold Inspection: Critical in Icelandic climate
• ✓
  Heating System: Assess type, condition, and operating costs
• ✓
  Insulation Quality: Crucial for energy efficiency and comfort
• ✓
  Natural Hazard Assessment: Evaluate flooding, volcanic, or geothermal risks
• ✓
  Winter Access: For properties outside urban centers
• ✓
  Renovation Assessment: Estimate costs for any necessary improvements

Financial Due Diligence

• ✓
  Comparative Market Analysis: Verify price against comparable recent sales
• ✓
  Rental Market Research: Confirm realistic rental expectations
• ✓
  Operating Cost Assessment: Calculate all regular expenses (utilities, taxes, insurance)
• ✓
  Tax Calculation: Determine stamp duty, property tax, and income tax implications
• ✓
  Currency Impact Assessment: Analyze exchange rate effects on returns
• ✓
  ROI Calculation: Develop detailed cash flow projections and return analysis
• ✓
  Exit Strategy Evaluation: Assess potential resale market and timing

Expert Tip: Due to Iceland’s unique geological conditions, always verify if the property is in an area with volcanic or geothermal activity risk. The Icelandic Met Office (Veðurstofa Íslands) maintains hazard maps that should be consulted as part of your due diligence. Properties in high-risk areas may have insurance limitations or higher premiums, which can significantly impact investment returns.

Offer and Negotiation

1. Obtain Permission (if required): Non-EEA buyers should begin this process early
2. Make an Offer: Typically done through the real estate agent
3. Negotiation: Price, terms, and included items negotiated
4. Preliminary Agreement: Often with a small deposit (1-5%)

The Icelandic market generally has less negotiation flexibility than North American markets. Properties priced correctly tend to sell close to asking price, especially in Reykjavík. Outside the capital, there may be more room for negotiation, particularly for properties that have been on the market for extended periods.

Purchase Process

1. Engage a Lawyer: Essential for foreign buyers to navigate legal requirements
2. Obtain Kennitala: Required for all property transactions in Iceland
3. Due Diligence: Property inspection, title search, encumbrances check
4. Purchase Agreement: Formal contract prepared by lawyer or real estate agent
5. Payment of Deposit: Typically 10% held in escrow account
6. Financing Arrangements: If not paying cash, secure mortgage commitment
7. Final Contract Signing: Both parties sign the purchase agreement
8. Payment and Transfer: Remainder of purchase price transferred
9. Registration: New ownership registered with Land Registry

The timeframe from offer acceptance to completion typically ranges from 3-4 weeks for a straightforward cash transaction, though it can be longer for complex cases or where Ministry of Justice permission is required for non-EEA buyers. The purchase process is generally efficient compared to many European countries.

Transaction Costs

Budget for these typical transaction expenses:

• Stamp Duty: 0.8% of the property’s value
• Registration Fee: 0.1% of the property’s value
• Real Estate Agent Fee: 1.5-2.5% (typically paid by seller but can affect price)
• Legal Fees: ISK 150,000-350,000 (higher for foreign buyers)
• Ministry of Justice Permission Fee: Approximately ISK 120,000 (if applicable)
• Property Inspection: ISK 80,000-150,000
• Kennitala Application: Nominal administrative fee
• Mortgage Arrangement Fee: 0.5-1% of loan amount (if financing)
• Currency Exchange Costs: Varies by provider (0.5-3% spread)

Total transaction costs for foreign investors typically range from 2-4% of the purchase price. This is relatively low compared to many European countries, though additional costs may apply for non-EEA nationals requiring special permission.

Expert Tip: Icelandic law doesn’t require use of escrow services for property transactions, but foreign buyers should insist on this protection. Ensure your lawyer establishes a proper escrow arrangement for holding funds until all conditions are met and ownership transfers are officially registered. This is especially important when purchasing remotely or from overseas.

Administrative Tasks

• ✓
  Registration: Ensure property is properly registered in your name with Land Registry
• ✓
  Utility Transfers: Register utilities in your name (electricity, water, heat, internet)
• ✓
  Insurance: Arrange comprehensive property insurance
• ✓
  Property Tax: Ensure you’re registered for property tax payments
• ✓
  Local Municipality Registration: Register with local authorities if applicable
• ✓
  Emergency Contact: Establish local contact for property management

Regulatory Compliance

If you plan to rent your property, be aware of these regulations:

• Short-term Rentals (under 90 days):
  • License required from the municipality
  • Building must meet health and safety standards
  • Must register with Icelandic Tourist Board
  • Subject to VAT (currently 11% for accommodation)
  • Maximum of 90 rental days per year for residential properties
  • Requirements vary by municipality
• Long-term Rentals:
  • Formal lease agreement required
  • Subject to Icelandic Rent Act provisions
  • Security deposit limited to 3 months’ rent
  • Cannot unreasonably restrict tenant rights
  • Housing committee can review disputes
• Health & Safety Requirements:
  • Smoke detectors required
  • Proper heating and ventilation
  • Fire safety equipment
  • Building structural certificate
  • Compliance with building code

Non-compliance with rental regulations can result in significant fines, particularly for unlicensed short-term rentals. Enforcement has increased in recent years due to the impact of tourism on local housing markets.

Record Keeping

Maintain comprehensive records for tax and legal purposes:

• Property Documents:
  • Purchase contracts and transfer documents
  • Land Registry registration
  • Property valuation reports
  • Building inspection reports
  • Any permits or licenses
• Financial Records:
  • All property-related expenses with receipts
  • Property tax payments
  • Utility bills and payments
  • Insurance policies and payments
  • Rental income and agreements
  • Currency exchange transactions
• Tax Documentation:
  • Annual Icelandic tax returns
  • Home country tax filings related to the property
  • VAT registrations and filings (if applicable)
  • Capital improvements documentation
• Rental Operations:
  • Tenant agreements and communications
  • Property management contracts
  • Maintenance records
  • Guest registrations (for short-term rentals)

Icelandic tax authorities require records to be kept for at least 7 years. For foreign investors, maintaining duplicate records in both Iceland and your home country is advisable, with digital backup systems.

Expert Tip: The rental landscape in Iceland is seasonal, particularly for tourist-oriented properties. Summer (June-August) can see rates 2-3 times higher than winter months, with shoulder seasons (May, September) also strong. Long-term rental demand is highest in autumn as students and new residents arrive. Plan your rental strategy to account for these fluctuations, including potential vacancy during winter months for properties in tourist areas.

Icelandic Tax Obligations

• Property Purchase Taxes:
  • Stamp Duty: 0.8% of property value
  • Registration Fee: 0.1% of property value
  • Due at time of purchase completion
• Annual Property Tax:
  • Municipal property tax up to 1.65% of assessed value
  • Rate varies by municipality
  • Based on official property valuation
  • Billed annually or quarterly
• Rental Income Tax:
  • 22% flat rate on net rental income
  • For residential rentals, only 50% of gross rent is taxable
  • Limited deductions for expenses
  • Annual tax return filing required
• Value Added Tax (VAT):
  • 11% on short-term tourist accommodation rentals
  • Registration required if turnover exceeds threshold
  • Regular VAT returns and payments
  • Long-term rentals are exempt from VAT
• Capital Gains Tax:
  • 22% on the profit when selling property
  • Based on difference between purchase and sale prices
  • Some improvements may be added to cost basis
  • No exemptions for foreign investors

Home Country Tax Obligations

Iceland has tax treaties with both the United States and Canada designed to prevent double taxation. However, the interaction between tax systems is complex and requires professional guidance from advisors familiar with both Icelandic and North American tax regulations.

Tax Planning Strategies

• Entity Structure: Evaluate whether personal ownership or company structure optimizes tax position
• Timing of Transactions: Consider tax year implications for purchases and sales
• Expense Documentation: Maintain detailed records of all allowable expenses
• Renovation Timing: Strategic timing of improvements for tax purposes
• Rental Structure: Consider tax implications of short-term vs. long-term rentals
• Currency Management: Plan currency transfers to minimize exchange impacts
• VAT Registration: Determine if voluntary VAT registration is advantageous
• Professional Support: Engage tax advisors in both Iceland and home country

Tax rules change frequently, and Iceland has modified its property taxation system several times in recent years. Regular consultations with tax professionals are essential to ensure ongoing compliance and optimal structuring.

Expert Tip: For residential rentals in Iceland, only 50% of your gross rental income is subject to taxation, which creates a favorable environment compared to many other countries. However, expense deductions are more limited than in North America. This unique structure makes proper tax planning essential, as traditional strategies focused on maximizing deductions may be less effective in the Icelandic context.

Selecting a Property Manager

Evaluate potential property managers using these criteria:

• Experience with Foreign Investors:
  • Understanding of international owner needs
  • Experience with tax reporting for non-residents
  • Strong English communication skills
• Professional Credentials:
  • Membership in professional associations
  • Professional liability insurance
  • References from other foreign clients
• Service Range:
  • Comprehensive service package
  • Emergency response procedures
  • Clear fee structure with no hidden costs
  • Regular inspection protocols
• Communication Systems:
  • Online owner portal
  • Regular financial reporting
  • Responsive to international time zones
  • Transparent maintenance reporting
• Contractor Network:
  • Established relationships with reliable trades
  • Transparent pricing on maintenance
  • Emergency repair capabilities
• Marketing Capabilities:
  • Effective rental marketing strategy
  • Multiple listing platforms
  • Professional photography
  • Competitive market analysis

Leading Property Management Companies

Several companies in Iceland specialize in managing properties for foreign investors:

• Reykjavík Property Management: Specializes in long-term and corporate rentals
• Iceland Rental Management: Focus on luxury short-term vacation rentals
• Stay Iceland: Full-service management for tourist properties
• Nordic Homes: Residential property management for long-term rentals
• Apartment K: Specializes in urban apartment management

For short-term vacation rentals, some international management companies like Evolve and Vacasa have partnerships with local operators in Iceland. These can provide familiar systems for North American investors while leveraging local expertise.

When interviewing property managers, request a detailed scope of services, full fee disclosure, sample reports, and multiple references from current clients, preferably other foreign investors with similar properties.

Expert Tip: For properties in remote areas of Iceland, ensure your management company has local contacts who can respond quickly to issues. Winter conditions can make travel difficult, and having someone nearby who can check on the property after storms or address emergencies is essential. In some cases, it may be worth establishing relationships with neighbors who can provide immediate assistance when professional help is unavailable.

Exit Options

Sale Process

When selling your Icelandic property:

1. Pre-Sale Preparation:
   • Property improvements for marketability
   • Professional photography
   • Gather all documentation
   • Tax planning consultation
2. Agent Selection:
   • Choose agent with international buyer network
   • Evaluate marketing strategy
   • Understand commission structure (typically 1.5-2.5%)
   • Negotiate listing agreement terms
3. Pricing Strategy:
   • Comparative market analysis
   • Consideration of currency exchange factors
   • Seasonal market adjustments
   • Negotiation allowance
4. Marketing Period:
   • Online and traditional marketing
   • Property viewings (agent managed)
   • Negotiation with potential buyers
   • Offer acceptance
5. Sale Process:
   • Purchase agreement preparation
   • Buyer’s due diligence period
   • Resolution of any issues
   • Contract signing
   • Receipt of funds (typically in escrow)
   • Transfer of ownership
6. Post-Sale Requirements:
   • Capital Gains Tax filing
   • Currency repatriation
   • Home country tax reporting
   • Closure of Icelandic accounts if no longer needed

The selling process in Iceland typically takes 2-3 months from listing to completion, though market conditions and property type can affect this timeline. Properties in Reykjavík and other urban areas generally sell more quickly than those in remote locations.

Market Exit Timing Considerations

Several factors should influence your exit timing decision:

• Icelandic Real Estate Cycle: The market typically follows 5-7 year cycles influenced by tourism trends, economic conditions, and domestic factors
• Currency Exchange Rates: Monitor ISK/USD or ISK/CAD trends to optimize repatriation value
• Seasonal Market Strength: Spring and summer typically offer the strongest seller’s market, particularly for tourist-oriented properties
• Interest Rate Environment: Lower rates generally increase buyer demand and property values
• Tourism Trends: For properties dependent on tourism, monitor visitor statistics and growth projections
• Infrastructure Developments: Completion of major infrastructure projects can positively impact property values
• Tax Considerations: Timing sales relative to tax years in both Iceland and home country
• Natural/Climate Events: Consider geological activity and climate change impacts on property desirability

Strategic investors should establish clear performance benchmarks and regularly evaluate their Icelandic property against both local and global alternatives. The highly seasonal nature of Iceland’s tourism market and the volatility of the Króna make timing considerations particularly important for optimizing returns.

Expert Tip: If you’re considering selling your Icelandic property, track currency exchange rates carefully. The Icelandic Króna has historically experienced significant volatility, and this can substantially impact your effective return when converting proceeds back to USD or CAD. In some cases, it may be advantageous to time your sale to coincide with favorable exchange rates, even if housing market conditions aren’t at peak. Consider using forward contracts to lock in exchange rates once a sale is in progress.