I moved to Copenhagen in 2009, because I had to start as a mason apprentice. The first apartment I lived in was one of my parent’s friends. He told me that I could stay there for three months to two years. So I thought to myself:
“It must be a bit more than three months, in the worst-case”.
I lived there for three months.
After those three months had passed, I packed everything I had in one of my parents’ car. And I was ready to go live at my parent’s place again. Which was the most horrible feeling.
I didn’t even get to unpack the car before my mama called me and told me that she has just found an apartment for me. First I thought it was a joke. But it was a 50 m2, apartment at Nørrebro (my favorite spot in Copenhagen) for 2200 DKK/month and I could stay there as long as I liked.
It was like winning the lottery.
Still to this day, I freaking love that apartment.
But what if have bought the place?
I have never been a big fan of people who buy their house/apartment, and call it “their best investment ever”. Because they have never done any investing besides buying a property. And they would have been but fucked if they got fired from their job.
But recently I got introduced to the term “House Hack”.
House hacking is where you either buy a house or an apartment, where you live it in yourself, and rent one part of the house out, or rent some rooms out if you have an apartment.
By doing so, we can live cheaper, maybe even for free. Because our tenants/roommates will pay a good chunk of your mortgage and rent.
Three types of returns by House Hacking
If you start to House Hack you will see three types of returns.
- Saved rent
- Mortgage payments
- Appreciation
Saved Rent
If we are capable of living for free in our House Hack we will save some rent from where we previously lived.
By taking me as an example:
I pay 3.000 DKK (500$)/month or 36.000 DKK (6.000$)/year.
This far my biggest expense in my budget, and by eliminating that. I would have 36.000 DKK more every year to invest. My yearly expenses will go down from around 100.000 DKK (16.000 $) to about 63.000 DKK (10.000$).
mortgage payments
The primary reason that I don’t think owning a home is an investment, is because of the mortgage payments. There are two things I don’t like them.
First is that you have to pay them every month. Having such a huge “bill” every month is the same as being in prison if you ask me. There is no room for adventures if you have to pay +6.000 DKK every month. I want a life where I can go away for the next six months without worrying about mortgage payments.
But if you House Hack your tenants will help you pay the mortgage.
This will not only make room for adventure, it means that you will earn money while you are away on an adventure.
Appreciation
Real estate in Copenhagen (Nørrebro, where I’m living) has gone up about 7%/year since 1980.
But appreciation is a random thing. And it will not be the main factor to determine whether or not I’m going to buy a House Hack.
While this is the most powerful return of all because of leverage.
Imagine that you buy a 2.000.000 DKK apartment with 100.000 DKK (5 %) of your own money. If the apartment appreciates 3.5 % (half of what it normally has), the return will be 70.000 DKK and your ROI is 70 %.
Not bad compared to a 7 % ROI in Stock Index Funds.
What if have House Hacked my apartment?
Calculating how much money we could have made if we just had “insert your regret of not investing”, is one of the stupids things we can do.
That is one of the main purposes that this blog and the whole FIRE community exists. To have fewer regrets about how you are dealing with your money, and your future freedom.
But to prove the power of House Hacking, I will calculate how much money I would have made if I have bought a similar apartment, and rented out a room.
Back in 2009, the average price of one square meter apartment in Nørrebro was 19.802 DKK.
And my apartment is 50 m2, with a living room, bedroom, and a kitchen. You could live with two people there, in your own room.
The price of an apartment like that in 2009 would be:
50 m2 x 19.802 DKK = 990.100 DKK
A quick mortgage calculator will tell me that my mortgage payments with a 5 % downpayment (about 50.000 DKK) would be:
3600 DKK/month after taxes.
Where 2.700 DKK would be the down payment on the mortgage and the remaining will be the interest.
Taxes and similar on an apartment like that will probably be around 2500 DKK/month, which is similar to the average of my monthly rent in the apartment.
You can earn 4.000 DKK/month on a room in Nørrebro post taxes.
Let’s Sum it up
Ingoing:
Roommate 4.000 DKK
Outgoing
Mortgage: 3.600 DKK
Taxes: 2.500 DKK
Total: 6.100 DKK/month
Outgoing – Ingoing: 2.100 DKK/month
It would cost me 2.100 DKK/month to live there. Which is 900 DKK less than what I pay now. But every month I will earn 2.700 DKK because of the down payment on the mortgage my roommate is helping me to pay off.
So the first year of having a roommate would look something like this.
- Saved rent: 900 DKK x 12 months = 10.800 DKK
- Mortgage payments: 2700 DKK x 12 months = 32.400 DKK
A total of = 43.200 DKK
And with a 50.000 DKK payment my ROI would look like this:
(42.300 DKK / 50.000 DKK) x 100 = 86.4 %
Holy smokes! 86,4 % rate of return on your 50.000 DKK. That is more than 10 times the 7 % ROI we calculate with on our index funds.
But it gets better!
What about the appreciation?
From 2009 to 2010 at Nørrebro
Exactly one year later the average square meter for an apartment in Nørrebro has raised from 19.802 to 20.918.
Let’s have a look at what that means in my apartment.
(20.918 DKK – 19.802 DKK) x 50 m2 = 55.800 DKK
So if I sold the apartment the following year I would have made another 55.800 DKK.
So the total return would be:
42.300 DKK + 55.800 DKK = 98.100 DKK
And the ROI will be:
98.100 DKK / 50.000 DKK = 196 %
That’s an insane return! That would take almost 10 years to do with an index fund.
But it gets even better!!!!!
From 2009 till now
It has been 11 years since I moved into my apartment.
And we have calculated how much I would have earned in saved rent, and mortgage payments. Which was 43.200 DKK/year.
In 11 years I would have made:
43.200 DKK x 11 Years = 475.200 DKK
Not bad!
But the square meter on Nørrebro has appreciated too.
The average price on Nørrebro is now 42.942 DKK/m2. And I have paid 19.802 back in 2009. That means the appreciation would be:
(42.942 DKK – 19.802 DKK) x 50 m2 = 1.157.000 DKK
And my total return would be:
475.200 DKK + 1.157.000 DKK = 1.632.200 DKK
Or an ROI on:
50.000 DKK / 1.632.200 DKK = 3.164 %
With a stock index fund returning 7 %/year it will take 52 years to go from 50.000 DKK to 1.632.200 DKK which was made by House Hacking.
And yes. There will be some expenses by having an apartment. But even with 100.000 DKK allocated to refurbishing. And another 100.000 DKK allocated to the real estate agent to sell it. It is still an insane deal, that we all should consider doing.
Is it IMMORAL to house hack?
This is a thing that has been going on my mind. Is it immoral to let someone else help you pay off your mortgage?
And my conclusion is NO.
By House Hacking, you provide with several good stuff to your roommates.
Difficult to find a place in Copenhagen
It is super difficult to find a place where it is affordable to live in. When you arrive at the city, ready to start your studies at 20 something years old. You will probably be like most of us where you can’t afford to buy something.
If we share a room in our apartment we can live more people in the city. Without occupying a ton of space.
Is your boss immoral?
House Hacking is no different from your boss hiring you.
You are probably glad that you get paid every month from your boss. But we are hired to make our boss money. Which we don’t find immoral.
Renting out a room is no different from getting hired at a job.
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