Pay back your family, not the Spanish banks!
(Or how borrowing from Grandma can boost your real estate project in Spain)
What if your next mortgage wasn't with a bank... but with your own grandfather?
The (brilliant) idea in a nutshell
When you borrow money from a relative (parents, grandparents...), you create a real debt, with a loan contract in due form. And this debt is recognized as such by the Spanish authorities.
➡️ Translation: for Spain, you have financed your purchase via a loan, with interest payable, as if it were a bank.
Why is it clever?
- In Spain, interest is deductible from property income. So your SCI (or you, if you buy direct) pays less tax.
- The person lending you the money earns interest, without necessarily being taxed on it. For example, a grandfather living in Luxembourg will pay nothing. It's legal, simple... and profitable.
- No bank paperwork, no deposit, no hassle. Just a well-written IOU.
"Pay back your family, not the Spanish banks!" - It's not just a slogan, it's a real lever for tax optimization.
Concrete example
You borrow €100,000 from your grandfather, at 2% annual interest.
Result:
- You deduct €2,000 a year from your taxable rental income in Spain.
- Grandpa earns €2,000 at ease, in annuity mode.
- You keep control of your project, without diluting your shares or bringing in new partners.
Must be done
- Draw up a written, dated and signed loan contract, with fixed interest and repayment schedule.
- Register it (optional but recommended).
- Keep rigorous accounts in your SCI or acquisition structure.
- And of course, respect the tax rules of the lender's country of residence.
The last word
This set-up is neither a hacker's trick nor a dubious gimmick. It's intelligent transmission, strategic taxation, and a good excuse to have a coffee with Grandpa while talking real estate.
FAQ : Borrowing from family to buy real estate
Do you know anyone who has ever borrowed from their parents or grandparents to invest in real estate?
The answer is a resounding YES! One of our customers, whom we'll call Robert (modified for the occasion, but keeping the "Ro" in his first name) has already done this... and not just once. There's something for everyone.
Why would your parents or grandparents agree to lend you money?
Your parents or grandparents generally invest their money very poorly. They invest in euro funds and low-interest life insurance, or let their money sit in current accounts and savings books that pay less than inflation.
How do you convince your parents or grandparents to lend you money?
You're going to have to come up with a real sales pitch, and be as prepared as you would be in front of a real banker. The best way to do this is to present them with a property sheet, i.e. an investment project sheet presenting all the financial elements, the market study and the estimated rental income (with supporting comparables).
What happens if you make a bad investment and can't repay the loan?
If it were a bank, it could seize the property, having the mortgage guarantee. Since the property is held by your parents or grandparents, you run the risk of a family squabble, but not of losing the property. Your grandfather will more easily give you an extension of time to repay it, than your banker would!
Can the loan be structured "in fine" (repayment only at the end)?
No. In Spain (and in most other jurisdictions), a loan between individuals must be amortized gradually, with regular repayments (annual or quarterly). In other words, you have to repay part of the principal each year, not just the interest.
Tax authorities expect a clear amortization schedule, which means that maturities must include both interest and capital. This strengthens the credibility of the contract and avoids any recharacterization (e.g. as a disguised donation).
Can we set any interest rate?
Nor should you. Even if it is not a bank loan, the interest rate must remain "within the market", i.e. reasonable and justifiable.
In practice, rates between private individuals are capped at around 5 to 6% maximum, depending on the context.
An excessive rate could be rejected by the tax authorities, or even requalified as a partial donation.
💡 Tip: To avoid any problems, base yourself on an interest rate equivalent to that charged by banks on personal loans of the same duration, or use the benchmark interest rates published in the lender's country of residence.
Do I need a lawyer in Spain to draw up or register the family loan contract?
Yes, absolutely.
Although a family loan may seem straightforward (it's "just" money between relatives), it's a real legal act, with tax and accounting consequences. To make sure you're on the right track, we strongly recommend you consult a lawyer. This usually costs less than €500. Contact Delaguía y Luzón on behalf of Terreta, for example, as they have already done this for several of our customers.
Would you rather take out a mortgage with a bank to avoid family problems?
Too bad, I thought family credit was fun. But if you're worried about falling out with the family, then check out our article on mortgages in Spain (with banks, this time).
