Thursday, 7 August 2008

Rent Up or What's The Duck Situation

"Rents rose on average 4.1 percent from April to June compared to the same period last year, reports Statistics Finland."

So rent are up 4.1%, while inflation is 4.4% so by simple arithmetique, I could say that rent are up by -0.3%. Great, I'm donald duck, and I'm going to buy a flat to make -0.3% instead of 5% in a simple risk free euribor linked saving account...

humm, forgot something, I'm making this massive profit of -0.3 % if I assume that my asset is no losing value...

Let's dig in ... clever as usual, I (Donald duck) start to ride the housing bubble and bought, at the top, a 300 000 euro flat which i plan to put on market for rent for making this massive -0.3% profit.

So I take a loan, open a bank account in Sampo while closing my accounts in any other small Finnish banks (although they don't have IT problem, they might have insolvency issue...I'm a duck but not a donkey). Why Sampo, because the banker is my best friend in town, no need to get drunk for that ... plus they offer, not a free round, but lower interest rates than say Nordea.

So I take my 300.000 euro for 5.5% for 30 years (duck don't live that long but the banker insisted that it's the best for me, my children and gran children... I trust bankers and I trust that they won't give my credit information to "katso" paper...)

so it makes 360 euro for capital , 1 250 for interest that brings 1 610 euro monthly payment


Since this Flat is being build by enthusiastic builder YIT (I still predict that their share price will go to 3 eur at some point), they made it so that cost of maintenance are high ...

so 200 euro charge

Other hidden cost
Insurance, tax, reparation, month not rented etc...
190 euro


2000 euro / month

So now, I need to make some profit on my buy to rent business, so I call VuokraTurva, the king of the pigeon, to get some advise...after a long conversation, I become very optimistic as the guys there seem to be genius and visionnary. They told me to advertise for 2500 euro, because it will make you a 500 euro gain...damn I could not have had better advise... they as well told me that the sky is the limit and they know how to turn lead into gold : rent business...

After 6 years

My health has been deteriorating fast, my debt is rising faster than time... I have been losing 2500 euro per month in the first year as nobody was interested in that flat...the second year i lowered the price to 2000 euro to at least cover my costs ...still nobody. I took a job as a night cab driver to fill the gap since I'd lower the rent to 1500 euro still nobody...

in the meantime...

Prices has gone down by 30%, my asset is valued strongly lower than my mortgage. The banker, that old friend doesn't answer my phone calls and keep sending me emails threatening to take over the assets of my gran mothers... Finnaly, I had become the slave of the bank, I stopped travelling, stopped eating to restaurant, stop seeing my mistresses ...I have been in under water for so I'm now even proposing to pay someone to get in the flat as its state is deteriorating very fast.

Buy to Rent sucks like ducks I tell you... Buying on top is like playing Russian Roulets with canons...


Andrew said...

Whatever the rent situation other factors are building rapidly i believe.

There are now for example 350 properties for sale on lautassari alone

in Helsinki there are 370 flats for sale in the range 81-90 m2

And there are price reductions in houses:

here are some price reductions for own home houses in helsinki since mid june 2008. There are more.

Aurinkomäenkuja 5, Puistola
458 000 € reduced from 480

Peilitie 12, Vartiokylä
395 000 € reduced from 439

Selim Lindqvistinkuja 2, Pitäjänmäki
475 000 € was 495

Sadetie 13, Malmi,
488 000 € was 498

I am not sure how the mortgage securitization market directly affects Finland but the European market is more or less dead.


HELSINKI, Aug 7 (Reuters) - Finland's quarterly industry confidence fell sharply in July, a survey published by an industry group said on Thursday, flagging growing economic uncertainty.

The industry confidence indicator was -28 points in July, the Confederation of Finnish Industries (EK) said in a statement. In the last quarterly indicator, published in April, industry confidence was -5 points.

"The situation at the moment is still normal or better, but expectations have weakened clearly," EK said. "During the rest of the year the business cycle is expected to cool faster than before."

And it is not just Finnair that is going to feel the effect of a slowing China

So already in August there is plenty to say that by the autumn the situation is going to be much clearer. Hard to see how Finland can avoid all the stuff that is going on elsewhere.

Andrew said...

reduced today:

Helsinki, Kyläkunnantie 83, Länsi-Pakila

was 428k now 398k

so 5% off list price.

Anonymous said...

"Sampo offers lower rates" - this is incorrect. Sampo offers lower yearly rates with a different day count convention than (for example) Nordea thus the true cost of the mortgage is higher with Sampo.

360 or 365 day count makes a big difference...


Anonymous said...

I think Sampo offers lower margin..for cars they offer 1.5% margin while Nordea Nordea seems to ripp off quite much money for those who do not investigate...


HousingFinland said...

Andrew, you are providing very good data.

In fact I thought, at some point, to start this type of price evolution...

Ideally it will be good to have a computer program that could pull from oikotie/etuovi data and store them in database at a time t(n) in key area then rerun the program to see the evolution at a time t(n+1).

Or simply just have an Excel Spreadsheet that put some property for all will be interesting to see the evolution...

A quartely chart?