In one of the most expensive countries in the world
A little over a month ago, my girlfriend and I moved into our dream house after having immigrated to a country where we knew absolutely nobody 4 years and a half ago. It’s pretty uncommon for people our age (late twenties-early thirties) to own a house, especially in a foreign country, for 2 main reasons:
- People our age tend to prefer living in big city apartments to be able to go out, party, do groceries easily… They’re willing to sacrifice space and often nature for a lifestyle focused on urban experiences.
- The real estate market has become so crazy and expensive that most 30-something simply can’t afford a house, let alone a deposit for one.
Yet we were able to get our dream house in one of the most expensive countries in the world (Denmark), without any financial help, and starting from almost zero. In this article, I want to outline how we were able to do it and how creating my business being an entrepreneur was key to securing the property.
When I started writing online 3 years ago, I didn’t think of monetization right away. I just got sick of always postponing all my projects and of never putting anything I made out into the world. Eventually, I told myself “Screw it” and hit publish. My first piece to get some attention was an interview roundup where I asked 10 top online writers about their morning routine. A publication reached out to me to feature it on their homepage, and that’s how I got started. A few months after publishing my content, I was making my first few online dollars.
Flash forward 2 years, and I had developed the activities around my writing quite a bite:
- I had created my website,
- interviewed 75 more top authors on productivity,
- built an email newsletter audience on the side,
- started to sell online courses/products.
With all that, I felt ready to set up my own business, and I’ve been building it from the ground up since then. This is called bootstrapping, and it can help you save for a house too.
Bootstrapping refers to the process of starting a company with only personal savings, including borrowed or invested funds from family or friends, as well as income from initial sales. Self-funded businesses do not rely on traditional financing methods, such as the support of investors, crowdfunding or bank loans
Bootstrapping can also mean starting a business with $0. Some examples of the biggest companies that were bootstrapped include Zapier, Basecamp, Mailchimp… It was never my intention to save up for a house while building my business, but it kind of happened naturally, and here’s how.
When you have your own business, you can save money in 2 main ways:
- Either pay for business-related expenses VAT-free or have the VAT reimbursed to your bank account by tax authorities (usually every quarter). The Value-added tax (VAT) is a tax added to a product at every point of the supply chain where value is added to it. In Europe, the average standard VAT rate is 21% and since you can write it off as a business, you get a nice discount on 99% of the goods you purchase.
- Use your business bank account as “savings” and let the money pile up there without touching it.
If you keep at it for many years and don’t give up at the first obstacle like I did, these 2 simple tricks will surely add up.
Note: these 2 tips only apply if you have a sole-proprietorship company, which is an unincorporated business that has only one owner who pays personal tax on profits earned from the business. A sole proprietorship is the easiest type of business to establish or take apart.
Depending on the financial situation of your business, your bank might let you use your business to finance your loan, for instance as collateral. If you’re doing amazing, they might even let you buy the house through your business (effectively making your house your own offices).
My bank didn’t let me do that, but I was still able to use my business bank account as “indirect leverage”. In order to ease the loan approval process, I told them I had comfortable cash resources in my bank account which was a great argument to prove financial robustness. Plus, since my business is registered as a sole-ownership and not an independent company, it’s very easy for the bank to seize it if I ever default on my loan.
Now, it’s very important to understand the ins and outs of a move like that, and it won’t always be possible to do so. In our case, it ended up not playing a huge part in the deal because we went under budget (more on this soon), but it’s definitely something worth looking into if you’re looking to secure a loan and are lacking a bit of personal cash.
My girlfriend and I always wanted a house, because we prefer to have space, a backyard, and to be able to go for walks in nature. Living in Copenhagen, Denmark, we knew this meant we had to move to the countryside. Like in most capital cities, the price of an apartment in Copenhagen is literally the same (if not more) as a nice 2-story countryside home that’s 3 times the size and has a lot of land around it. Unless you’re a multi-millionaire, there’s no way you can afford a house in the city, or even in the suburbs.
When we applied for a loan at the bank, we were happy with the number they gave us, and we didn’t see any reason to go argue and ask for more. I have a friend who did that because he wanted to get the biggest house his money could get him (like a lot of people do). He ended up having to change banks, adding months to the hellish process, and all for an apartment just a few square meters bigger, in the same location.
My girlfriend and I ended up securing a house more than $20,000 under our budget. This is unthinkable for many people because a house is one of the most important purchases of their life, so why not max out on it? Well, when you ask yourself a few simple questions, you quickly realize you don’t need to:
- Do you really need 3 baths?
- Do you really need 2 garages?
- Do you need a pool?
- Do you need heated flooring?
- Do you need a big driveway?
For us, the answer to all these questions was the same: absolutely not. Getting the house you want is not about lowering your expectations, it’s about redefining them. We live in a capitalist world that profits off people who always spend more on stuff. Every day, we get bombarded with ads for things we don’t need, but we want to get them because “they’re cool”.
In the same way, we’re sold the dream of the perfect house with the white picket fence right from childhood. We see it in movies, in ads, in magazines… We’re told getting the biggest house we can afford is a great use of our money… So of course we want to get it when we’re grown-ups and start having an income. But the truth is, most of us need a house, not a mansion.
Our house is 200m² (2152ft²) on a 900m² lot (9687ft²). It’s 2-story high, doesn’t have a basement nor a driveway, and we love it. It’s close to the water as we wanted, and we live 10 minutes away by bike from an awesome forest. It checks off (almost) all our criteria, and that’s all we were looking for.
Let me be clear. We could have never afforded the house we now live in if we had owned a car. Especially in Denmark, a car is one of the most expensive things to own. The vehicle registration tax can get as high as 150% for new cars (yes, you read that right), which is part of the country’s efforts to reduce its carbon footprint. When you add up insurance and maintenance costs, it gets pretty insane.
We didn’t own a car for the first 4 years and a half we were in Denmark, we just biked everywhere (Denmark is great for biking but this option won’t be possible everywhere). These days we have a flexible leasing contract on a tiny car because it’s hard to do without one in the countryside. This means we pay a higher monthly premium, but we can stop the contract from one month to the next and return the car anytime.
Although real estate has been a burning hot market for the past decade, it’s still very different depending on what part of the world you live in. The cost of living, purchasing power, currency value, and even the legislation around the financials of owning a house make it impossible to understand the price of any asset without the economic context around it.
$500,000 for a house might be considered expensive in some parts of the U.S, or of the world. But if you look at a very expensive city like New York, that’s way below the median home price of $760,000. In Denmark, the average price for a single-family house is $352,600 (converted from Danish kroner). But again, without looking at the average salary, or the price of a gallon of milk, it’s very hard to get an understanding of what that means.
What remains true is this: the more you can save money for a deposit, the easier it will be for you to afford a house. Especially in times of economic uncertainty and potential crisis like we’re seeing, cash is king.
A small business is better than no business, and setting up my own little company out of my bedroom 2 years ago was one of the best financial decisions I made in my life. If you have a hobby you can turn into a money-making side hustle, I highly encourage you to pursue that, stack up the money in a separate bank account, and use it when the time is right.
Thanks for reading, and enjoy the journey!
Author: Joseph Mavericks