Explaining to my wife how this is a bad deal

12 Replies

I apologize ahead of time for the way I lay this out as it will be amatuer, because I am a amateur. Also for most likely leaving some numbers out you all need to help me out. We would occupy this property for a year and be moving to the US in late fall 2015. 

This property is in Norway. Centrally located near the shops and public transportation, and schools. check check check. 

I will be converting all the $ amounts USD as of exchange rates today.

678sqft 2Bedroom 1bath apartment. In great shape.

Asking price: Now this is where it is a little confusing for me. The actual apartment asking price is $100,000 (630,000nok) which is what we would pay to get into the place all cash. But immediately there is a monthly payment due on a loan which is assumed upon purchase for the actual Apartment Building, which is merged with other expenses for the apartment; water, garbage, television and internet(upgradeable naturally) building insurance, janitor services, snow removal, and overall grounds upkeep, and other maintenance.

This payment is $1040 (6,558.00kr) per month. This loan is $152,952 (963 598kr)

All apartments are like this in Norway. What is strange (unverified) is my wife said we cannot pay this portion off early.

So I lump this loan with the asking price of the apartment for a total of $252,952.

Upon moving out, and attempting to turn this into a rental or selling; Potential Buyers and Tenants must be approved by the Apartment Building Board. 

More Problems: No property management company to speak of. In my search I have yet to find one that actually is a 100% service. Several will let you list your property on their rental sites for a fee. So living 6000 miles from this property already seems a deal breaker.

Plus sides : There are no available rentals in this property's town. None. But there are several houses for sale, but no other apartments. This area is desirable. Comparable apartments rent for  $1507/month (9500kr)

I plan on making a few calls on Monday to get some clarifications, but my wife is really pushing me for this property. Open house is next week also.  

Thanks for your time!

Sounds dangerous.  I'd look into what the eviction process is there or if there is one.  If you don't have to show up to court then maybe it's possible to self-manage and hire a company to maintain the property and also show it when you're gone.

What is the reason to buy in an area that you are moving 6, 000 miles away from?

@Bob Bowling - This area is where she wants to live for the next year, and there is nothing to rent. But there are properties to buy. 

Maybe look into something like airbnb or if they have Craigslist or something equivalent there.  Might also want to look into weekly/monthly rates at Hotels rather than risk it all.

Pass. It doesn't have to be this hard.

We do have some European investors on BP, but I've not come across any Norwegians who might be able to advise you. I wouldn't touch this without local advice.

Does anyone have any colleagues they could summon who might be able to help?

maybe try posting again with Norway, Scandinavia, or at least Europe in the subject line? you might get a more informed response

Where in Norway would y'all be buying?

@Steven N.  

Why do you think there are no rentals in that area?  Definitely talk to an agent or someone who understands rental supply and demand in the area.  It seems you still need some key information before making a decision.

If you are not experienced landlords, have no property management or systems in place that could handle it long distance, and don't plan to be in this place longer than 1 year, then it would be prudent to pass.  While she may be thinking of how great it is to live there now, you both need to be thinking longer term.  If it is possibly such a great deal that you can live there for a year and sell it and get your investment back after costs of selling it, then consider it that way, but that would be too much risk for me knowing I would be 6000 miles away if I couldn't sell it.   

@Evan R.   a town of about 6k people called Spydeberg ( translated Spear Hill)

@Louis Leone   - There are neighboring towns which are larger than Spydeberg within 7 miles, and the major highway E18 connects them all, along with the major passenger train railway. But spydeberg is a more "quiet" town. The same size apartment but brand new above a supermarket about 1mile from the property in question is listed for 500kUSD. Insane.

@Lynn M.   Agreed. The exit strategy is certainly dumping the property after one year.  Renting a property in the surrounding area will be around 1507USD/month . From calculations of actually just taking a loan out on the 100k purchase price and paying the building Loan, we actually come out ahead with purchasing.

We spoke over dinner and she is completely set on buying this property. I feel like now its all about me trying to mitigate loss.... ugh...

What an interesting little town. From searching on airbnb, one host says:

 I love living in this quiet Norwegian village close to the woods full of wild mushrooms and berries in the summer and cross-country skiing opportunities in the winter.
-Zanete

It sounds like she has very strong reasons for wanting to buy a place in Spydeberg. Have you talked to her about her feelings for buying in Norway? 

Hi Steven,

Don’t know if it’s a little too late, but let me shed some light on some of your concerns.

“678sqft 2Bedroom 1bath apartment. In great shape.”

678sqft equals 63m2. The average price per m2 in Spydeberg is 21.369kr. Since the asking price for the apartment in question is a total of 1.593.598kr, that tells me that the the asking price per m2 is 25.295kr, and may seem a little expensive. However, keep in mind that I have not seen the property.


“Asking price: Now this is where it is a little confusing for me. The actual apartment asking price is $100,000 (630,000nok) which is what we would pay to get into the place all cash. But immediately there is a monthly payment due on a loan which is assumed upon purchase for the actual Apartment Building, which is merged with other expenses for the apartment; water, garbage, television and internet(upgradeable naturally) building insurance, janitor services, snow removal, and overall grounds upkeep, and other maintenance. This payment is $1040 (6,558.00kr) per month. This loan is $152,952 (963 598kr).”

The total will be as mentioned above, 1.593.598. This type of community loan is something that became popular in the late 90s early 2000 here in Norway. The reason was that developers bought a building, renovated it and then sold it. Their costs is in the community loan, and the sales price is more or less pure profit. This however is not as common now as it was then, and if there are community loans, almost all owner communities offer individually down payment. What this type of financing does is that a lot more people will be able to buy the apartments, as the individual loans are so small that there are no risk for the banks to loan the buyer the amount they are asking. The bank always have first priority in a foreclosure, and the loss will be on the owner’s community. Unless the community is insured, which all new owners communities in Norway now by law must be. Since a lot of people can buy these apartments they are often overpriced. You must check if the owners community is insured. This is called "borettslagenes sikringsfond".
 
“All apartments are like this in Norway. What is strange (unverified) is my wife said we cannot pay this portion off early.”

As mentioned, this is not the norm anymore.

“Upon moving out, and attempting to turn this into a rental or selling; Potential Buyers and Tenants must be approved by the Apartment Building Board.”

This is important. No owners community wish to have tenants as their neighbours. Therefor by law, you are not allowed to rent out these type of apartments. There are exceptions, such as moving away, joining the military and such. However, you will need to live in the apartment one year before renting it out, and you can rent it out for a maximum of three years. There are some exceptions from this rule, contact me if you want to know about these. The approval process you are referring to is in regards to the laws mentioned.

“More Problems: No property management company to speak of. In my search I have yet to find one that actually is a 100% service. Several will let you list your property on their rental sites for a fee. So living 6000 miles from this property already seems a deal breaker.”

There are many options here. The biggest property management company for private property in Norway is www.utleiemegleren.no.

“Plus sides : There are no available rentals in this property's town. None. But there are several houses for sale, but no other apartments. This area is desirable. Comparable apartments rent for $1507/month (9500kr)”

The reason for that might be because “Ostfold” is not the most desirable place to invest in rental property, as the increase in prices here is less than the national average. But this might of course change in the future.

In general there are few risks involved in buying property in Norway as it is one of the most regulated and transparent markets in the world, but its important to know what you can do with the properties in regards to renting out, developing and such.

Hope this was of some kind of help even though I came in a little late.

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