Following the various debate and posts on financial independence – early retirement here in Denmark, there is a lot of focus on real estate investments.
I am a strong believer in real estate in any dividend portfolio, and I have been thinking/dreaming/planning my own journey into real estate for years.
I have always known/wished that I would some day end up running my own real estate portfolio of investments. So much so, that when I studied at Uni, one of the last courses I took was actually called Real Estate Economics. Think 6 months of the A to Z of every aspect of real estate. The different forms of real estate, national/international real estate, taxation of real estate and so on and so. In my mind it was only a matter of days – weeks most, until I would emerge as the new real estate king of Denmark. Nothing wrong with dreaming right.
To this day I have to conclude that it didn’t quite go as initially planned. Life got in the way.
In my view, when scouting out real estate investment, there should be a decent balance between risk and reward. To me this should be somewhere between 6-8% direct return on the investment. With “normal” leverage this would then be somewhere more in the order of 10-12%. In a world where FED’s tide has lifted all boats around the globe, this is somewhat hard to find, and as been for many many years. Especially if you live in a city where the direct rates of return are around 1-2% will this be hard to find.
So what has historically been considered a normal rate of return is now considered abnormal.
Here in Denmark, if you want to returns that somewhat aligns with that more normal range, then you would have to go a 1 to 2 hour drive outside of Copenhagen. This is where – to me – it becomes a bit impractical, with a full time job and 3 kids. So the full time real estate portfolio had been more or less has been put on hold until the day that I am actually able to withdraw from the labor market.
That didn’t stop me totally from investing in real estate though, as I have now settled on a real estate fund I found. The fund is called Koncenton growth cities, and is a local danish fund that basically relies on the same thinking as I like to apply.
The “growth cities” definition in the fund means that it cannot invest in Copenhagen and Aarhus, the two largest cities in Denmark, and where rates of return tend to be as mentioned in the order of 1-2%. Instead they will invest in other larger danish cities with decent population growth and other well defined parameters. Budgeted return over 10 years is 9.75% and expected annual dividends are 4.4%.
The fund further comes with a structured exit opportunity after 5 years which to me is important if I at that time would like to employ my capital differently.
All in all, a decent investment compromise I think, even though it is not quite the real estate investment career I imagined 15 years ago.
Then again, we also have the vacation home in Cold Hawaii, so if you ever need to rent a place for your next vacation then check it out at Airbnb
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