Many people dream of building a substantial wealth and putting it to work generating passive income. For most, this is a dream of FINANCIAL INDEPENDENCE. Imagine being at the beach with your family, soaking up the sun, while your wealth continues to generate income.
Steady Cash Flow: Monthly rent provides a steady cash flow, offering a predictable income source for the owner.
Appreciation of Real Estate: Over time, real estate properties tend to increase in value, potentially resulting in long-term capital gains for the owner.
Investment Diversification: Property investment can be a way to diversify, as it is not directly tied to the performance of financial markets.
Financing Possibility: The option to finance part of the property purchase through mortgages allows you to avoid depleting your capital and use leverage to increase your investment capacity.
Before embarking on this path, it is crucial to understand your savings capacity, which will determine the number of properties you can acquire in the next 10 years. Ideally, avoid depleting your capital and opt for purchasing the property with a mortgage. To finance a property, you'll need at least 20% of the property's value, plus the taxes and expenses associated with the property acquisition. In the Valencian Community (Spain), the tax is 10% of the property's value, while in other Spanish communities, it varies. In addition to taxes, there are Notary and registry fees. It's important to note that most banks finance a higher percentage if the property is intended for primary residence. However, when leasing the property, you may need a higher percentage than 20% to finance the purchase. Also, consider additional expenses associated with financing, such as insurance.
Choosing financing when purchasing a property not only prevents capital depletion but also opens the door to leveraging when investing in rental properties. This strategy allows using borrowed funds to finance part of the investment instead of relying solely on your own resources.
Suppose you have €100,000 to invest in a property. Instead of acquiring the property entirely with that amount, you can leverage financing to obtain an additional €100,000. Now, with a total capital of €200,000 (€100,000 yours and €100,000 from the loan), you can buy the property without fully committing your capital.
A recommended practice is to acquire both fully paid and financed properties for rent. This provides a balanced mix that maximizes opportunities and reduces the risk associated with a single financing strategy.
If income constraints exist, understanding your savings capacity is essential. Evaluate how long you'll need to save enough funds to buy a property for rent and how many properties you could acquire in the long term.
Those who have built extensive wealth and own a large portfolio of rental properties are often individuals with solid incomes and significant savings capacity, such as entrepreneurs, athletes, musicians, among others.
For those with a considerable sum to invest, acquiring properties for rent is an attractive investment. Suppose we want to invest around €300,000 in properties, considering the possibility of acquiring several apartments for rent.
When approaching the investment in rental properties, it is crucial to explore various strategies to maximize the return on investment. Below are some strategic considerations:
- Focus on Affordable Housing:
- Imagine wanting to invest in affordable housing in the Costa Blanca, specifically in the Torrevieja area. Focus on investing in the most affordable 1 or 2-bedroom units with an estimated rent between €400 and €600.
- You can also consider exploring areas near the coast. If you move a bit from Torrevieja and slightly away from the coast, you can invest in areas near the beach, such as Montesinos, Formentera, Rojales, Dolores, Almoradí, where you can find 2-bedroom apartments at more attractive prices.
- Diversification in Large Apartments:
- Another strategy to consider is investing in large apartments located in high-demand, low-supply areas, opting to rent the property by room. Suppose you are in an area where the cheapest rental property is €600 per month; you could rent a 3 or 4-bedroom apartment per room, generating an average income of €350 to €400 per room. This type of rental is common among students who need to share an apartment since they cannot afford a €600 apartment.
- Strategic Location:
- Consider investing in properties located in specific central areas, such as apartments on the beachfront or in the heart of the city.
- These strategic locations may allow higher rental rates, attracting tenants willing to pay a premium for the location.
- New Construction Investment:
- Another option is to buy newly constructed properties, whether villas or apartments, which will provide higher rental returns.
- Newly constructed properties offer the advantage of not requiring initial investments in repairs, being under warranty, and attracting tenants seeking modern standards.
- Another advantage of acquiring a new property is its lifespan. A second-hand property of 25 years will have 50 years in another 25 years, while a new property will have more years to make it profitable and generate profits.
There are many more strategies when focusing on a housing typology, as mentioned earlier when discussing financing. Ideally, if you have a high purchasing power, diversify your wealth in different types of properties and determine which ones are the most attractive for investment.
My recommendation, if you have never invested in rental properties, is to start gradually, either with or without financing. Acquire a property, rent it out, and once it is working for you, generating passive income, consider acquiring the next property. The versatility of this business lies in the ability to sell properties if necessary, providing flexibility to your investment portfolio.
If you have sufficient funds to invest, acquiring properties for rental can be a very good option, considering that this strategy generates passive income without requiring significant time dedication. Annual benefits range between 7% and 10%, comparing favorably with the average profits of a business, which typically range between 5% and 10%. Investing in rental properties stands out as an interesting option.
REMEMBER THAT PASSIVE INCOME FROM RENTAL PROPERTIES CAN BE A SOLID ALTERNATIVE, WITH ANNUAL BENEFITS OFTEN OUTWEIGHING OTHER INVESTMENT FORMS.
In a recent video, Jorge Lorenzo shares investment perspectives, highlighting Switzerland and Dubai as attractive destinations. However, he expresses some caution about investing in Spain, citing concerns about potential tenant defaults.
We want to emphasize that there are solutions to mitigate these risks, such as obtaining Rental Insurance. This type of insurance, which is approximately half of a monthly rent, offers complete coverage against various eventualities.
You will be protected against any eventuality with the tenant. Monthly rent will be guaranteed indefinitely, and legal expenses, compensation for acts of vandalism, protection against occupation, and non-payment of utilities (electricity and water) will be covered.
Investing in Spain, especially in the Costa Blanca region, emerges as an attractive option. It boasts spectacular weather, exceptional quality of life, and unbeatable gastronomy. Additionally, Spain is recognized as a safe country to live in, with a high-quality healthcare system.
We hope these reflections are helpful when making decisions if you decide to invest in properties. We will be delighted to assist you in the search and management of apartments for rent, offering our services and expertise.