Financing a real estate investment

Are you looking to diversify your investments and think that investing in properties is a good option, but you don't know how to get the necessary funds?

We know that financing a real estate investment can be complicated and requires a deep understanding of the different options available.

If this is your case, you are in the right place.

In this article, we'll introduce you to various forms of financing for the purchase of real estate.

We will analyze the pros and cons of each option with which you can make the best financial decision and become a successful investor in the real estate market.

What financing options are there

If you are looking for financing to buy a property, several options are available. Below we will show you an overview of the main options for financing real estate investments.

Mortgage loans

Mortgage loans are a common way to finance the purchase of a property. In Spain, there are several financial institutions that offer mortgage loans with different terms and payment terms.

What is it? Mortgage loans are long-term loans used to finance the purchase of real estate. The property becomes security for the loan, and in case of default the bank can foreclose the mortgage and recover the money borrowed.

The requirements for applying for a mortgage loan in Spain vary depending on the financial institution, but in general it is required to have a reliable source of income, to have no outstanding debts and to contribute a percentage of the value of the property as an entry. It is also important to note that the bank performs an assessment of the applicant's credit risk. Normally, no more than 80% of the value of the property is financed, so you have to have some savings.

According to the National Institute of Statistics (INE), the number of mortgages aimed at housing reached 30,075 mortgages nationwide in December 2022

Advantages and Disadvantages of Mortgage Credit

The main perk What is it about mortgage loans that allow finance the purchase of real estate. In addition, repayment periods are usually quite long, making it possible to repay the loan in more affordable installments.

On the other hand, the main drawback It is that if causes a default, the bank can foreclose the mortgage and keep the property, which can mean a significant loss for the investor.

Real estate crowdfunding

This form of funding has become very popular in recent years. It consists of a group of investors providing small amounts of money to finance the acquisition or rehabilitation of a property. In return, investors receive a share in the property and a return based on the profits generated.

Real estate crowdfunding is a form of collective financing in which several investors contribute small amounts of money to finance the acquisition or rehabilitation of real estate. Each investor receives a share in the property and a return based on the benefits generated.

Reental is presented as an alternative to real estate crowdfunding, with the difference that offers greater liquidity to investors . Real estate experts validate a series of projects that we present to our investors to co-invest with us in the exploitation of that asset, and they may be entitled to the income generated. Reental owns the properties it manages, while crowdfunding platforms connect developers and investors but they don't own the asset.

The requirements to participate in a real estate crowdfunding project vary depending on the platform, but in general you must be of legal age and have a bank account in Spain. It's also important to note that each project may have specific requirements.

Advantages and disadvantages of an investment fund

The main perk of investing in Is real estate investment funds that allow diversification investment in the real estate sector, which reduces risk. El high entry ticket that investment funds usually require can be a limiting for Access this typology of reversal.

Real estate investment companies

Real estate investment companies are companies that invest in the real estate sector. Investors buy shares in the company and receive a return based on the profits generated by the company.

Investment companies are public limited companies that are dedicated to investing in different types of assets, including the real estate sector. These companies allow investors to participate in real estate investment projects together, and they receive a return based on the profits generated.

The requirements for investing in investment companies vary by company, but in general, a minimum amount of money is required to invest. It is also important to note that the company performs an assessment of the investor's credit risk.

The graph shows the change in the share price of five main SOCIMIs in Spain during 2017-2021.

Advantages and disadvantages of real estate companies

Investing in investment companies allows you to diversify your investment in different assets, reducing risk. In addition, the investor does not have to worry about managing the project, since this is the responsibility of the company. In this type of investment, you do not have control over the management of the asset and the value of your participation is exposed to the share price of the SOCIMIS.

Participatory loans

Participatory lending is a form of financing in which the lender participates in the profits of the company to which it lends the money. In the case of real estate investments, participatory loans are used to finance the acquisition or rehabilitation of a property.

Participatory loans are long-term loans in which the lender not only receives interest, but also receives a share in the benefits of the funded project. These loans are an alternative form of financing to traditional bank loans.

The requirements for applying for a participatory loan vary depending on the financial institution, but in general it is required to have a company with an adequate structure and financial capacity to assume the investment. It is also important to note that the lender performs an assessment of the applicant's credit risk.

Advantages and disadvantages of participatory lending

The main advantage of applying for a participatory loan is that it allows you to finance the investment with a capital structure that does not require additional guarantees. In addition, the lender not only receives an interest, but also a share in the benefits, making him a financial partner of the project. On the other hand, the main disadvantage is that the cost of the loan may be higher than that of a traditional bank loan. It should also be noted that the project may not go as expected, which could mean a loss for the applicant.

Final reflection

As you have seen in this article, you have different options when looking for financing for your real estate investment. Unfortunately, from Reental we cannot recommend “the best” since it will depend on the situation of each one.

What we can recommend is, if you want start investing in properties and forget about all the paperwork and procedures, Sign up on our platform gain exposure to the real estate market without the costs and risks associated with direct ownership and start investing from 100€ in properties selected by our experienced real estate team.

In order not to miss any of the opportunities we present, we recommend that you join our group of Discord or Telegram To get to know others Reental and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.

Welcome to the new way of doing finance, welcome to Reental.