He bought an apartment in a new building in Straume in 2019 for NOK 3.2 million. With an 85% loan-to-value ratio, he had a mortgage of NOK 2.72 million. If you have an average gross income of 500k annually, you already have the maximum loan-to-value ratio on your own home.
This is exactly what limits most people when they want to buy a rental property in Norway - the loan-to-value ratio! It says you can borrow a maximum of 5x gross income. This applies to all debt, mortgages + student loans + consumer loans + credit card limits.
If you're in this scenario, it may seem difficult to start investing in real estate. You can rent out a bedroom for 5-6k a month, which gives 72k annually x 5 = 360k more in loan-to-value. Then you can get some banks to include future rental income in the loan-to-value ratio. My experience here is that they take a good safety margin on potential rental income. Say they calculate 15k a month in future rental income on an apartment that actually yields 20k. 15k x 12 = 180k annually x 5 = 900k more in loan-to-value ratio.
This gives you a total of NOK 1.26 million more in loans. For that, you might get a small apartment outside the city center. Not exactly a big difference, and you'll need a lot of equity if you want something bigger.
What my brother did was to sell his own home and instead use the loan-to-value ratio on a rental property in central Bergen. Sold April 2021 and rental property bought now in August. New home purchased for NOK 4.07 million, and mortgaged at 85% with a mortgage of NOK 3.46 million. Now he rents an apartment with some friends and pays 7k in rent including electricity and internet. See the calculation below. Now he is left with 14,000 more in his account every month! This adds up to a lot in a year, plus he is in a much better position for scaling.
Say you now have an average gross income of 500k + annual rent of 283k. 783 x 5 = 3.915 million in loan-to-value ratio. Then you can go to the bank a year later with some mortgage repayments and perhaps a salary increase. Get them to calculate future rental income on a new property and the cards suddenly look a lot better! Many people think owning your own home is a good investment, I think there are better investments. If you think about price growth, I strongly believe that apartments in Bergen will increase more than new builds on Sotra in this scenario.
This is just one example of how to get started with real estate investing. There are many options out there. Tax-free rentals in your own home can work just as well, if not better. It all depends on your situation and what you're willing to sacrifice.
Feel free to leave a comment or any thoughts! Maybe one day I'll make a post about how I went from NOK 0,- in monthly rental income to NOK 135 000,- in 3.5 years!
