The Norwegian Investor - The Numbers

So I promised to share the numbers regarding the first deal, so here they are. Please remember that these numbers are for Tønsberg, Norway, and that the currency is in Norwegian Kroner (aka kr or NOK). The conversion rate is aproximately 1 US dollar = 8 kroner, and since the conversion rate fluctuates every day I will post using the norwegian kroner currency.

Ok, so lets do the big numbers first.

• Purchase price = 1,600,000kr
• Mortgage = 1,200,000kr
• Downpayment = 400,000kr
• Transfer costs = 44,000kr

Total purchase price (purchase + transfer) = 1,644,000kr

I raised the money for the downpayment by getting a Home Equity Line Of Credit (HELOC), which is called "Rammelån" or "Flexilån" in the Norwegian language. If you don't know what a HELOC is, it can be explained like this: 

HELOC's are just like a mortgage, but instead of receiving all the money and debt in one go, you get a bank account with the money available to spend as you think is best. Its the same as a credit card, where you have a limit, and the interest on the debt starts to run from the day you spent it.

I owned my apartment that I live in free and clear. It has a value of a little bit over 2,300,000kr. So I asked the bank to give me a HELOC of 1,000,000kr, that I could use for buying an investment property. Once I got approval, I started to look for my investment property, and eventually landed on a deal close to my own home. I called my banker and asked for a meeting, in which I told her my plan of using 400,000kr of the 1,000,000kr to pay for the downpayment and 44,000kr to pay for the transfer costs. Thus using the equity in my home to pay the downpayment and transfer costs. I wanted a mortgage of 1,200,000kr to cover the rest.

She thought it was a bold move, and accepted the application with an amorisation plan of 25 years, and the interest on both the HELOC and the mortgage are 3,25%.

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Now let me share the monthly numbers.

• Rental Income 10,000kr
• Communal costs - 1,400kr
• Tenant Insurance - 50kr
• Other Expenses -100kr
• Mortgage Interest - 3,250kr

• Taxable income 5,200kr

• Taxes (28%) - 1,500kr
• Taxbreak (33% of mortgage interest) + 1,000kr
• Mortgage Principal - 2,850kr

Monthly Cashflow = 1,850kr

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Annual cashflow = 12x 1,850kr = 22,200kr

Annual Mortgage reduction = 12x 2,850kr = 34,200kr

Total NOI 56,400kr

This is the number I use to calculate my numbers. Since the entire downpayment was paid for by a HELOC and I used none of my own money, my return on investments will be infinite. Altho this makes me all fuzzy inside, it doesn't make me able to use the numbers for benchmarking. Because of this, the rest of the math will use the assumption that the downpayment was done cash.

ROI = NOI / (Downpayment + transfercosts)

Return On Investment = 56,400kr / 444,000kr = 12,7%

Cap Rate = NOI / Purchase price

Cap rate = 56,400kr / 1,644,000kr = 3,4%

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The property market in my city has been very hot for a very long time, and there are no immediate signs of it cooling down yet. The expected apprichiation for my area in the next year is 8%. 

I do not expect 8%, but if it happens, that will likely increase my flat by the following ammount.

1,600,000 * 0,08 = 128,000kr

This means my total ROI could be (128,000kr + 56,400kr ) / 444,000kr = 41,5%

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One more thing I did right after I purchased the flat was to build another bedroom, thus increasing the value of the flat by at least 100,000kr and this only cost 10,000kr to put up and only took one week. This has not been appraised yet, but I feel it is a safe and conservative assumption as there are litteraly 0 apartments for sale under 1,700,000kr in the same area with similar sizes.

which means that my potential total ROI could be over 60% in the first year. 

I can't wait to see what the actual numbers will look like in one year!

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Some of you might react to the fact that I have left out some critical components in my numbers. Vacancy, Maintenance and Cap Ex. I do this intentionally, because I keep 200,000kr from the HELOC to target this and I also have other means to cover an additional 100,000kr, so I don't need to budget for these costs. I fully expect to have costs, but instead of budgeting on a monthly basis, I have already got a big buffer to cover every possible expense that I dont already have insurance for. I am expecting having annual maintenance costs of aproximately 6,000kr but we will see. As far as Cap Ex go, the house is in pretty decent shape, so I don't expect anything major in the next couple of years, but when they come I will be ready. As for vacancy, my city is a student city with many young proffesionals and it has much demand for rentals. We have a big shortage of apartments, which is why the prices are going up at a very high rate. I keep a 3 month cancelation period in my tenants contract, and I have insurance against the tenant not paying. I also keep a 3 month deposit. I have 100% faith that I can have a virtually 0% vacancy, considering I only manage one flat, the hot market and I know how and where to market my unit.

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In my next post I will write about my strange experience with the tenant that said he needed to move in quickly and even after 2 weeks, didn't show up. It was very confusing and it got me a little paranoid regarding if I was being taken for a ride somehow.

More in the next post!!