In Spain, 40% of Spaniards have a mortgage and much of these also have some savings in the bank, which do not know what to do with them. At this point the first big doubt always arises. What is better to take away mortgage or invest the money? Although it may seem to be less money to the bank, it is the best solution, it will not always be so, something in which many experts coincide.
In this sense, Jaime Gil, real estate investor, explained, both in the Tiktok social network and on his YouTube channel, what would he do if he had 100,000 euros in the bank right now. His initial message is clear “it would not even occur to cancel the mortgage of his house.”
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“What I would never do if I had 100,000 euros would be to cancel my house’s mortgage,” explains Gil. “With that money I would go to the bank to see how much more they can give me, since I could surely get another 100,000 and have 200,000 euros to invest in real estate.”
The investor is committed to financial leverage, which in his opinion is the key to multiply our opportunities. “I could buy two homes of about 100,000 euros each. There are many locations where this is possible: Valencia Norte, Castellón Sur, Toledo, Murcia, Alicante Interior … Even in the villages there are options, not only in the big cities,” he says.
Leverage or how to invest more with less money
Financial leverage is a technique that allows investing an amount higher than the one that is possessed by external financing, which can generally be done through mortgage loans. In this way, the investor has more money to access more active and diversify the risk. Now, as noted “whenever operation is well calculated.”
As explained, the advantage is that it can access more benefits, since if the properties are revalued and stable rental income is achieved, the return on the investment can be much higher than if it acts only with its own resources.
Now, Gil explains the importance of analyzing the inverter’s profile and adjusting the strategy to the risk and tolerance to each other. Thus, he says it in one of his YouTube videos, in which he breaks down three possible profiles between beginners, media or experts to invest 100,000 euros in real estate.
If we are beginners, we must go to the safe and simplicity. In this sense, Gil explains that we must look for areas where prices still allow to buy housing for between 70,000 and 80,000 euros, make small reforms and not exceed 90,000 euros of investment per property. In this way, the objective would be to buy two floors that generate rental income that adds about 1,200 euros per month. In short, not complicate and with the aim of putting the money to work as quickly as possible.
In the case of having some experience, Gil proposes to go one step further and do what we have said before, leverage to the fullest and look for diversification. In other words, invest between 20,000 and 30,000 euros per property, financing the rest, with the goal of reaching four profitability properties. Here we must take into account and geographic and temporal diversification is important, staggering purchases and assuming some more risk to capture opportunities with greater profitability.
Finally, if we are experts, the way of proceeding changes. “A professional investor rarely has 100,000 euros in liquidity because he is always looking for new opportunities,” jokes Gil. But if the case was given, I would bet on Fix and Flip operations (buy, reform and sell) or transform premises or lots into homes, seeking to quickly multiply that capital.
Multiply money, but prudence
Not everything is positive, since as points out, the main threat is not being able to cover the loan fees if the income does not accompany or if the economy is complicated. In addition, a rise in interest rates can increase the cost of debt and erode the profitability of the project.
Therefore, the key is in the balance, in other words, use the leverage with criteria, understand the risks and adapt each movement to the level of experience of the investor. As Gil concludes, “the important thing is to gain confidence, learn from the process and, as you advance, diversify and assume risks only when the rules of the game are dominated.”