Denmark >> The Land Below Zero

[Mackin USA]

Fing Vikings  Good READ

"Clearly the usual rules tend not to apply in Denmark. So it's no surprise that the country in recent years has added a major new entry to its sprawling repertoire of eccentricities: Since 2012 it's been a place where you can get paid to borrow money and charged to save it."

https://beta.finance.yahoo.com/news/land-below-zero-where-negative-040004598.html

[ergophobe]

Wow. Interesting in terms of incentives, because at negative interest with five years guaranteed rate and a cap on how much it could rise per year for the next five years, I would buy a piece of land and build an investment property this year. Which would, in fact, pump money into the hands of local tradespeople.

[Torben]

It is only the central bank that has negative interest rate. You still pay in consumer banks.

[littleman]

Japan:  
http://www.wsj.com/articles/japans-negative-rate-experiment-is-floundering-1460644639

[Rumbas]

What Torben said, however we just refinanced from a 30 year 2,5 % with payments to a 5 year 0,54% flexible rate, no payments on the principle, only the interest rate and some fees.

Dropped our monthly house "payment" DKK 10,000 /  $1500. From $2400 to around $900.

[ergophobe]

5 year 0,54% flexible rate

Close enough. I don't need it to be negative per se.

The thing is, at a rate like that, it would relatively easy to buy/build a place, get it renting and just throw everything you can at the principal. After five years, if the interest rates climb, you refinance. If you bought a place for, say, $500,000 @ .6%, that's $3000/yr in interest at the start of the loan. If taxes, insurance and upkeep are another $1200/mo, that's $18k/yr. In my area you can make $68,000 on a $500,000 vacation home, so that leaves you $50K/year to put toward the mortgage. At the end of five years, you're at $250,000. If interest rates then start to rise, you have some cushion to kill the principal. So your time to payoff is still low. If they're still low, you buy another. Once one is paid off, you're putting a huge amt to principal each month.

At 5% on a 15-year mortgage, though, you're looking at $4000/mo in mortgage, plus the $1200 in taxes and insurance. Now you're on the hook for $62,400, so that 68,000 in income is hardly going to get you anywhere on the principal and you have to have a long time-horizon.

If I had figured the above out in my early thirties, it would still make sense at the higher interest rates. Not too late now, but not nearly as enticing.

[ergophobe]

Raz - if you can get a 0.54% loan to buy a property near here, I'll find you a good investment ;-)

The problem is you would have to hire a management company and they take 50%, so that cuts into your profit.

[Mackin USA]

50% = WTF

When Ruth Ann was in Property Management in Hawaii it was 10%

How did it go up so much?

[ergophobe]

This is for vacation rentals, so that cost covers
- cleaning 2-3x per week
- reservationists
- snow removal
- substantial AdWords spend
- additional advertising spend
- check-in office/employees
- running a fairly substantial reservations website

[Mackin USA]

AHHHHHHHHHHHHH OK