Just became a millionaire

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wood
Posts: 355
Joined: Wed Sep 16, 2015 5:53 am

Just became a millionaire

Post by wood »

I've become somewhat of an occasional poster in this forum, but haven't yet introduced myself and I thought today would be a nice occasion.

Hi everyone, I'm wood. I'm 31, come from Norway, work full time in the government (tax office) with median income ($3.000/month after taxes) and married with no (plans of having) kids.

A bit about my history
Today I am celebrating becoming a millionaire. It's millionaire in my local currency and a big step for me. As a small kid I loved monopoly and wanted to become rich. When receiving money gifts for my birthday during my typical middle class upbringing my uncle, grandparents etc would tell me things such as "save it so you can become a millionaire in the future". My uncle became a millionaire at 30 after starting his own company. So with time this has become somewhat of an inner joke between me and some of my family members, where they would ask me "so when will you become a millionarie" as I grew older. I've told my uncle of the fact, plus my mum and wife as I am very close with them. No one else knows, apart from you guys now :)

My 20s were spent (literally) by having lots of fun and travelling quite a bit, both during and after my studies. This left me with both student loans and credit card debt by the time I completed my bachelors degree. I got a decent job at 23 and slowly paid off my debts but didn't start saving seriously until I was in my late 20s somewhere, realizing that I was starting to put an inner pressure on myself to try aquire more freedom through wealth. That became my goal. At that time I had gotten myself into a costly long distance relationship which made saving difficult. But I still managed, and at 29 (in 2014) I decided to invest my $48.000 into real estate (400.000 in local currency). It was around that time I discovered ERE as I was doing research on "how to get rich" basically. Cutting costs and changing my life quickly became a small obsession. I've learned a fair bit about real estate related things, especially relating to analysis of prospects and dealing with tenants. An interesting fact is that I've spent a total of 150 hours on everything related to the properties I own since I started in Feb 2014 up until today.

Current standings
I was 29 years before I had $48k minus student loans of $18k. Now, 2 years later, I can proudly say my net worth is $121k including student loans. My balance sheet looks something like this (in $):

Property A: 151.000
Property B: 290.000
Cash: 13.000
Bank loan: 326.000
Student loan: 7.000
Total: 121.000 = 1.000.000 NOK

My yearly paid job income is $36.000 and estimated saving/investing amounts to about 50% of that. It was less in the past and will be higher in the future. I don't have a specific net worth goal for retirement but that first million felt really good. It feels like I'm moving somewhere, and I have a feeling the 2nd million will come quicker than the first:)

Future prospects
Most likely my networth will be x4 when retiring. I expect the real estate business to have a yearly cash flow of $20.000 after all expenses, and to use most of that as my personal income. This will be enough to support my wife as well, although I don't expect to be supporting her. My income will likely be boosted by part time jobs/hustle, and my personal history shows an ability to keep reducing expenses and using my spare time to make some extra cash. I don't count on pensions at all, but I do count on cheap healthcare because I'm Norwegian.

I'm 31 now and plan to retire before 40. My initial plan at 29 was to retire at 40, but according to my most recent calculations it looks like I can be there at 37. In theory I could actually retire today if I moved to my wife's home country, but its not on our agenda (yet).

God knows what I will do with all that extra time when I retire. What I know is that I will appreciate it. There are a number of part time jobs I want to try (pizza delivery, animal shelter, get a job at wife's workplace and sexually harass her LOL, newspaper delivery if those jobs still exist, tax consultancy, beer brewing). I have so many different interests that this won't be a problem. Until then I just try enjoy each day as it comes and live a little in the present, without spending too much.

You are most welcome to ask/comment anything.

Did
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Re: Just became a millionaire

Post by Did »

Welcome! Cool story.

BRUTE
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Re: Just became a millionaire

Post by BRUTE »

nice :)

wood
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Re: Just became a millionaire

Post by wood »

Thanks. Funny enough I "know" both of you from reading some of your posts. :)

Eureka
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Re: Just became a millionaire

Post by Eureka »

Congratulations!
So you take up loans to buy real estate? I am thinking of doing something similar (in Copenhagen) as the housing market here is rapidly on the rise, interest for mortgages very low and there is shortage of housing in this attractive city. However, do you plan to spread your investments to other assets as well in order to minimize risks or are you happy with only real estate?

BRUTE
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Re: Just became a millionaire

Post by BRUTE »

brute thinks there should be a thing where humans can enter their net worth, and it tells them in what currency they're a millionaire. should be plenty of currencies around. brute thinks he's a vietnamese dong millionaire.

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fiby41
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Re: Just became a millionaire

Post by fiby41 »

BRUTE wrote:brute thinks there should be a thing where humans can enter their net worth, and it tells them in what currency they're a millionaire. should be plenty of currencies around.
Same currencies would take the cake for most users like the Zimbabwean Dollar before it was suspended indefinitely.
BRUTE wrote:brute thinks he's a vietnamese dong millionaire.
You reminded me of this https://www.youtube.com/watch?v=TiufkixkLBA @3:00

wood
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Re: Just became a millionaire

Post by wood »

Eureka wrote:Congratulations!
So you take up loans to buy real estate? I am thinking of doing something similar (in Copenhagen) as the housing market here is rapidly on the rise, interest for mortgages very low and there is shortage of housing in this attractive city. However, do you plan to spread your investments to other assets as well in order to minimize risks or are you happy with only real estate?
Thanks.

Yes, that's exactly what I do. I save up the downpayments, get the mortage, buy the property and rent it out. Both properties have seen a rise in value, so Im using that for further leverage. Debt/Asset ratio is about 0,75 currently, which is the maximum banks here allow (0,90 if its your residence). In about 10 months I want to buy a 3rd property, in which I want the loan to be without downpayments (interest only) to boost cash flow. Cash flow is key I've learned, because more cash flow means more flexibility. It will be a value play, a fixer upper, that will be sold with profit later. Hoping I will learn some skills and shorten the ERE time span.

wood
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Re: Just became a millionaire

Post by wood »

I will most likely retire with 90% of my assets in real estate. But with time I want to build up a stock portfolio, have a comfortable cash reserve, and a portfolio of skills and projects that can provide income at any time.

FBeyer
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Re: Just became a millionaire

Post by FBeyer »

wood wrote:I will most likely retire with 90% of my assets in real estate. But with time I want to build up a stock portfolio, have a comfortable cash reserve, and a portfolio of skills and projects that can provide income at any time.
'grats Wood, that's really really nice. 1 mio would be 2/3 of my total retirement target :D

Whatever you learn about RE investing and fixing, please share. I'm looking to build a portfolio that looks a bit like yours, except the other way around. I'm building stocks first, then REIT, then bonds, then the hand-picked stocks.
Since I'm a carpenter I can build most of my own stuff, but the ins and outs of flipping or renting are still foreign territory.

What's the ROI on renting versus flipping for you?

wood
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Re: Just became a millionaire

Post by wood »

'grats Wood, that's really really nice. 1 mio would be 2/3 of my total retirement target :D
Thanks. You talking dollars or NOK? :)

I have thought of creating a personal tutorial for RE investing, but maybe I should just get my ass going and start a thread here somewhere instead.

Haven't tried flipping yet, but there's alot of uncertainty to it for several reasons:
- Hard to predict how much the upgrading will cost and how much time it will take (atleast for me)
- Hard to predict how much the upgrading itself will yield (did you make money because you upgraded, or because you were lucky with the bids when buying/selling?)
- Hard to find a balance in timing (e.g. should I buy in January, spend 2 months fixing it up, then sell immediately or should I rent it out for a while to be able to sell in high season? You sometimes need inside knowledge and abit of luck to predict high seasons)

A very high ROI for me would most likely be explained by luck when selling. But I want to try it before I can say much more about it.

In the case of my current properties they have so far yielded 19% and 25% per year on the capital I invested (before taxes). How I calculate:
Net result/capital invested
Net result is rental income minus all costs (except taxes). Loan downpayment is not considered a cost.
Capital invested is the downpayment I made when purchasing + fees, upgrades and immediate maintenance when/after purchasing.
The tax rate is a clean 27% on whatever profit one makes, so after taxes ROI would be 14% and 18%.

The overall ROI keeps going down the lower the Debt/Assets ratio gets though, so one could argue I need to keep investing to keep it up. It depends on whether I calculate with original or floating numbers - i.e. original downpayment or current equity on the property. Debt/Assets continues to go down the higher my properties are valued. This is what is pushing me towards buying a 3rd property. Nevertheless, I wouldn't expect anything near the same return on other asset classes if I tried investing in them.

One of the interesting things about the "market" I operate in is that the people I end up in bidding wars with are looking for a place to live. They are usually students with wealthy parents, or young people buying their first apartment. They usually ignore alot of the costs with owning their own living place. I'm very cynical and have a strict max price when bidding. I calculate my max price as a result of the analysis I do taking all costs and expected income into account. Sometimes I get a big difference between my own max price and the asking price, one way or the other. This usually leads to me losing the bidding war. But the 2 properties I got turned out to be very good ("below value") buys, so I'm tempted to think I'm getting good at this.

Another tip right off the bat; start building network. I have a pool of RE agents who keeps sending me offers of places to buy. Most of it is a no-go for me, but sometimes a good deal presents itself. All you need to do is send out a word to all agencies that you are looking to buy, and what requirements you have. With time you will learn who your friends and foes are.

Going through this post I can certainly say I have learned a lot in the past 2.5 years of doing this.

FBeyer
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Re: Just became a millionaire

Post by FBeyer »

Thank you very much for that! I've been thinking that the dhando approach to buying houses is the way to go, and your post seems to suggest that it is indeed the case. In other words, the profit is made when you BUY the house, not when you sell it.

The 1 mio would be in dkk. My current target for FI converts to 1,800,000 NOK.

Also, that return is insane! Bat shit, out of the park crazy! I sincerely hope you can keep it up over time.

Eureka
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Re: Just became a millionaire

Post by Eureka »

wood wrote:
Yes, that's exactly what I do. I save up the downpayments, get the mortgage, buy the property and rent it out.


Great, then I will do the same! I have been thinking about it for a while, but it just seems too easy.

So when you buy a new property, do you consider the income for rent most important or the likely increase in value?

The value of my apartment increases about 200,000 dkk/year at the moment, but I suppose I can not even make 40-50% of that in profit by renting it out. Or maybe even less depending on how much maintenance my tenants will cause.

wood
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Re: Just became a millionaire

Post by wood »

So when you buy a new property, do you consider the income for rent most important or the likely increase in value?
Any increase in value is considered a bonus for me, mentally. It helps me do refinancing and leverage further and faster, but my plans are not dependent on value increase. I plan from the perspective of "never going to sell". Hence, rental income and cash flow is absolutely key, and I try get as precise an estimate I can before placing bids on properties. The easiest way to do that is to place a fake ad where you list the property you plan to bid on, and see how many responses you get. Sometimes I list it 2 or 3 times with different prices and conditions (including/excluding electricity/internet etc in the rental price). So far, this has not affected my "landlord rep". I simply tell everyone "sorry, I gave it to someone else". I also respond (fake) to ad listings of rentals, to find out if the landlord has gotten any responses or at what price their property got rented out.

Once I have a good estimate, I run good/bad scenario calculations for cash flow and determine how much the property is worth to me. Generally, a deal is good if a bad scenario gives you zero or positive cash flow. At least thats the case for me. I'm yet to find a deal that looks too good to be true. I should add that even a bad scenario should be somewhat realistic still. And it always helps knowing that if shit really hits the fan I can cover all payable expenses on the property with the money I usually save every month.

The one month before buying seems to be the most time consuming for me. I think good groundwork makes for less time spent when you own and rent out.

The above mentioned fake-ad-technique will only teach you the current price levels. For historic perspective on rental prices you must "know your market" as they say. There are a number of ways to learn about your local rental market, but I've found the most efficient way is to operate in it yourself as a tenant over time. I have always rented my own residence. I have lived in this city for 10 years after coming here for studies. So I know the ropes. Also, of course, know the basic laws and regulations concerning rentals and pay attention to relevant news concerning the housing/rental market and finance in general.

All this being said, I always look for properties in areas I believe is trending upwards in value, or properties where easy fixes can give an immediate boost to value. That, together with getting a general discount when you buy (re: FBeyer - if we suppose asking price = market price and you bid 10% lower than asking price on 100 different properties, theres a good chance you will win one or several bidding wars), makes good odds for value increase.

wood
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Re: Just became a millionaire

Post by wood »

FBeyer wrote:Thank you very much for that! I've been thinking that the dhando approach to buying houses is the way to go, and your post seems to suggest that it is indeed the case. In other words, the profit is made when you BUY the house, not when you sell it.

The 1 mio would be in dkk. My current target for FI converts to 1,800,000 NOK.

Also, that return is insane! Bat shit, out of the park crazy! I sincerely hope you can keep it up over time.
Most welcome! And I'd say your retirement target is bat shit impressively low :)

The profit is made when you buy the house, totally agree. You can control the buying price to a great degree. Not so much the selling price. Rental income and maintenance costs can to some extent be under your control.

I know this forum is represented by a lot of American users, and while I don't know much about it, I think the American rental market is vastly different than the Norwegian. What I write here might not be relevant to other markets.

What I focus on are apartments, not houses. That means way lower maintenance costs, and lower buying/selling prices than if I'd focus on houses. I think this is part of why I am seeing good returns so far. I can't imagine getting the same returns on a house over the long term. Simply too much maintenance, which either consumes money or time, or both. Houses tend to see bigger value increases though, both in % and absolute numbers. I imagine flipping might be even better for houses.

IlliniDave
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Re: Just became a millionaire

Post by IlliniDave »

Congrats on hitting the NW threshold.

You are more courageous than I am. I like cash more than cash flow. I am not familiar with your real estate market but twice now I've seen periods in the US where cash flows from rental real estate dried up enough that highly leveraged folks got in serious binds. The only thing I'd say is ratchet up your cash reserves as the aggregate debt service payment you owe goes up. Otherwise, you seem on the fast track. Good luck!

wood
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Re: Just became a millionaire

Post by wood »

Thanks. I know I'm making choices that can be seen as risky. What makes me sleep at night is the fact I work in the government and my salary can cover the expenses of everything I own. It would take a doomsday scenario to drown me, but I am fully aware that it won't take that much to bring me underwater or in minor trouble. So far so good though, and I guess the main thing is to feel confident in what one is doing. That being said, increasing the cash stash is high on my priority list and thanks for the advice!

ether
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Re: Just became a millionaire

Post by ether »

Congratulations, once you own those houses, you're going to be set for life!

How's the property tax?
What's the tenant laws like in Norway?
How do you find your tenants?

wood
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Re: Just became a millionaire

Post by wood »

ether wrote:Congratulations, once you own those houses, you're going to be set for life!

How's the property tax?
What's the tenant laws like in Norway?
How do you find your tenants?
Thanks (again haha)!

Good questions, long answer...

Property tax is paid 3 times a year together with fees for access to the public water/drainage system and amounts to about $2000 per year per property. I dont remember how much the tax itself is, but it should be between 1/3 to 2/3 of the bill. Property taxes can vary a bit between counties, the cost in my county is considered average. Theres also tax on whatever profit you make (27%). This is often (illegally) manipulated by landlords and rarely checked by authorities.

Tenant laws favors tenants here. When a contract for lease is signed it can be very hard to evict someone who doesn't pay rent unless you are willing to risk fines/jail yourself. I know several landlords who uses violence as a passive threat in case of very troubling tenants. Using the legal route, you'd have to get an eviction note from the authorities and the whole process can take several months, even years if the tenant pays just what he owes and then stops paying, only for the process to restart. Evicting someone is in practice not very hard (like, physically, by changing locks) its just that it takes a lot to get the law on your side before you can evict. Its better to convince the tenant to move out by him/herself with 3 months notice or more.

Usually tenants behave just fine when it comes to these things, and an easy route to get rid of a tenant who's maybe abit late on payments sometimes is to tell them you have plans of moving in and they need to move out by x date. As a landlord its my right to evict a tenant if I wish to sell the property or move in to it myself. I've never heard of anyone being fined or jailed for being caught with a lie like that, so the worst thing that can happen is they see right through you and refuse to leave, in which you move on to plan B (legal/illegal route). Despite laws favoring tenants, there are many ways to go about it, some more risky than others. Again, good groundwork/research and being able to judge character helps alot. I have a good cop/bad cop side to me and I'm willing and able to bring out both sides when necessary.

Its normal to demand a deposit of 3 to 6 months worth of rent. I've found that more than 3 months deposit effectively prices you out of the market.

Utilities...example: the rent on my biggest property is $1500/month inclusive of everything. Electricity cost me about $100. Water/drainage is less than $100, same with property taxes. Maintenance for the apartment building includes internet and insurance and is $250. What's left is apartment maintenance, which is cheaper compared to houses and my apartments are small (430 and 190(!) sq ft.) $100/month is a realistic estimate on the long term (30+ years) for my apartments.
Its normal to include everything in the rent, or lower the rent a bit and have the tenant pay electricity and internet themselves. Whatever you agree on.

Contracts are either signed with no ending date and a specified 1-6 months option of resigning from the contract. Or they are signed for atleast 6 months of lease, and when the lease period ends the contract continues to run automatically unless the tenant resigns from it. If the contract doesn't state anything specific, the standard "notice of leave" is 3 months, just like the job market here. 1, 3 and 5 year contracts are normal. Personally I have no ending date on my contracts and any tenant can resign with 3 months notice. Tenants don't really need a valid reason to resign unless specifically stated in the contract, but even then the legal system tends to favor them in case of conflict. Landlords on the other hand, need a lot of reason (and time) to be able to evict.

My current tenants are very ok. Tenant A (small place) has stayed for 2 years and will likely stay 2-3 years more. Never really hear from him and he always pays on time, he's a student. Tenant B (bigger place) has stayed for 9 months now and is moving out next week. He has a dog, works in a bank, pays on time and is very easy to deal with. A couple is moving in, so Im quite anxious about getting everything right from the start. So far so good. Lets hope they pay on time :) I try to keep things professional and be nice/friendly at the same time. And I do full background checks before signing anyone. Lastly, I trust my gut feeling ;)

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