Should I put all my equity to buying my first apartment?

Question

Hi, I'm in 30 years old and planning on buying my first apartment this year. I still live with my parents here in Bergen, Norway.

- Full time worker with stable job- $26.7 hourly rate- $585K earnings in 2022 (I get 50% overtime)- No loans, no personal car. I have a company car.

I have managed to save a total of $90K, but I have put aside around $14K for furniture and personal security, so my equity is around $76K.

I don't mind living outside the city (which I currently do) but looking at the prices in the area I can possibly find an apartment for as low as $237K which is a stretch. The more realistic price for 50 square meters apartment, and one bedroom is $260K - $285K.

I have put in some numbers in Excel that calculates the total cost depending on my: Equity, the loan, common cost, Municipal cost. It also shows how much in percentage I would save if I up my equity. All the loans are calculated for 30 years.

My question here is: Should I put all my equity into the mortgage and pay less each month, or should I put less equity, pay more each month but have equity in hand for future rental properties, or investments?

I do have a "dream" to buy a rental property in the future, but I would need to have equity to buy a second property which I won't have if I put all my equity into my first apartment.

Jaron Walling · Answer

@Sean Robinson "- $585K earnings in 2022 (I get 50% overtime)" - This income is crazy high...no? You live with your parents and have only saved $90K? "Should I put all my equity" - equity or savings?

What are we missing here?

Live with you parents, stack piles of $$$$, then find/buy/create a deal. Market research/ strategy > excel spreadsheets.

Sean Robinson · Answer

I thought the post got updated. My bad. The earnings should be $58.5K and not $585K

Theresa Harris · Answer

Most people will get further ahead by putting less down and having tenants pay the mortgage down for them over time.  Living with your parents should help you get further ahead quicker especially with a job that pays so well.  Look for a place to buy where you can live for a while, but where the numbers make sense as a rental as well.

It is good that you've budgeted for furniture-most people starting out will be able to get some furniture from friends and family to keep costs down or look at local thrift stores for solid pieces for the non-fabric pieces (ie not sofas or mattresses).

Steve Vaughan · Answer

So $237k for a 170ish sqft apartment you pay retail for and will bring in $0 income but have a lot of expenses?

This is a lifestyle choice only you have the answer for.

Investors don't pay retail.  Investors have a way for the asset to generate a return.

In the future could this be rented out?  How much would it rent for?   @Sean Robinson

Steve Vaughan · Answer

I would suggest not paying retail. I'd put a sign up in the laundry room or common area of the buildings you want to buy in.  Call if you need to sell fast.  1st time local buyer for a home.  No commissions.  Something like that. Try and get a $237k place for $200k.

Without equity capture at the buy, this makes no sense to me from an investment standpoint. Unless these appreciate rapidly?   I asked about that before.It's usually better to rent if rent costs less than .5% /mo of PP. Your case, less than $1600/mo.  Yes, I'd rent a $237k place for $950/mo here in my area.    Or save up for a 2 unit or more bedrooms and househack/ have roommates.  Have a home and a rental at the same time.

Sean Robinson · Answer

The $237K apartment would be for myself. That's 50 square meter and one bedroom. I can't stay with my parents forever, or are you suggesting that I should rent a place for myself?On second thought, buying a rental after purchasing an apartment for myself seems impossible. You need to put down 15% for the mortgage, and another 15% down payment for a "secondary" mortgage or also called rental mortgage. The problem is that the total amount of loan cannot exceed 5 times my yearly gross income. So even if I decide to buy low end for myself for $237K and put down 15%, that's a mortgage of around $200K. My yearly income is $58.5K x 5 = $292.5K.That would mean I could only borrow another $92.5K for my rental property. What am I missing, and not understanding? I feel like I have saved a lot of money for a long time, but getting into the rental market just doesn't seem possible before I pay down my first mortgage which could take 15-30 years. Maybe I'm expecting a bit too much, but I was hoping to get started before I would be 60 years old.

Steve Vaughan · Answer

OK.  So renting a $237k place for $950/mo is horrible.   Won't be keeping it later if you decide to move up.

If the appreciation rate on these apts isn't great, this is strictly a lifestyle decision only you can answer.

If your mortgages are like US mortgages,  put as little down as possible to get the best terms.  Here 20% down avoids PMI, an insurance that costs roughly .5% and only helps the bank.  Good luck.

Jaron Walling · Answer

Oh that makes a minor difference. haha.

Take advantage of your situation to learn the market, save $$$, and understand the strategies. Any kind of house-hacking property is a great idea. It's pushed a lot in BP.

Sean Robinson · Answer

Buying the low end place (for myself) and buying a rental was the idea if that's what you meant. I would be able to rent it out in the future if I wanted to. I would be able to rent it out for around $950 a month.But the idea was to buy the low end place for myself, and then buy a rental, but I don't think I will be able to buy a rental if I spent all my cash as a down payment for my personal low end place.

Should I put all my equity to buying my first apartment?

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