How to Get RICH In Denmark (Unbelievable)
In Denmark, capital gains on the sale of your primary home are not taxed. You can be like this person:
- Bought a House - 2003, for close to 4m kr.
- Sold the House - 2020, for close to 16m kr.
- Profit: 16 - 4 = 12m kr.
- Taxes: 0.
Yep: 12m kr profit, in Denmark, and not taxed at all.
This is the one - and only, as far as I'm aware - "hack" in the Danish system. (Again, it only works for your primary home: the house you live at).
But Still, remember - In Denmark it's hard to be rich BY DESIGN. I'll give you two examples:
- In Denmark, if you earn in the top 10% (and even less than that), you pay 50%+ of your salary in taxes.
- Denmark also has - by far - the highest and most complex investment taxation in the world. For index funds - which is the investment vehicle that most people use, and what most rich people use to grow their money - you pay up to 42% of the investment gains in taxes and even if you don't sell. It's bru-tal.
Again - This is by design. Call it the Janteloven or whatever you want, but in Denmark it's hard to accumulate wealth.
BUT - Real estate is an exception to this rule, and I will argue today that it is what made most “rich” people in Denmark “rich.
πΎπ· Party Peter vs. Saver Sarah
I'll invite two people to put this into perspective.
First, let me introduce you to Party Peter. He's a joyful, "life well lived"-type of guy, and his story is:
- 2011: He's in university. With his parent's help, and bought a small apartment in Copenhagen for 2m. Importantly, that was the maximum the bank would allow him to borrow for.
- 2017: The real estate market boomed. His apartment was now worth 4m (double!). He sold, and used that for a downpayment for a new and bigger apartment at 7,5m. *Again, he borrowed every cent the bank could give him, which - with a 3-4m downpayment is a lot.
- 2022: The market kept going up. His apartment was now worth 10m. He sold, and - with his new wife, bought a house for 16m. (Almost all cash.)
Peter never invested. (He doesn't know what an index fund is). He never really "saved": aside from his (low) house payments he never put money aside. He even occasionally struggles with credit card debt.
But Peter is rich. He has a net worth of 7-8m kr: an euro millionaire.
Peter's story is multiplied through Denmark. The strategy, again, is very simple:
- Buy the most expensive house you can afford
- Sell at zero tax on the gain
- Repeat
In the last 10+ years this worked wonders.
But now let's contrast Peter with someone else who didn't buy a house, let's call her Saver Sarah:
- 2011: Sarah - to the great envy of many - got one of the many subsidized "public housing" options in a nice part of Copenhagen. Those come with a very low rent.
- 2017: She needed more space, but with real estate prices - (so she thought) "peaking" - she didn't want to buy and decided to move to another rental. She was lucky and found an incredible rent-controlled flat close to Norreport.
- 2022: Sarah got two kids, and with her expat husband decided they wanted to move to the suburbs. They were good savers through the past years, and could buy a nice house for 10m kr.
Sarah could pay for the 10m kr. house because she and her husband were diligent investors. Starting early, Sarah saved 2.000 a month, then 5.000 month, and last - together with her husband - 20.000 kr per month. (It helped she got cheap rentals throughout.)
Those savings were invested in good funds - 8%+ per year returns, which is the market average - and after paying the 27%-42% taxes on gains (unrealized, remember) each year, by 2022 Sarah and her husband had built a nice portfolio of 2-3m kr. Just what was needed for the downpayment for the house π.
It's wild, but Sarah could be - in the day to day, and for the past ten years:
- Earning much more than Peter - i.e., have a much better paid (but potentially more stressful) job
- Making much bigger sacrifices than Peter - i.e., you don't save 20K/m without making big trade-offs.
Yet, Peter has a net worth 3x Sarah's and lives in a nicer house. Crazy, isn't it?
Some Conclusions
It's not a given that Peter should've been better off than Sarah. It just happened that, through these ten years Peter:
- Borrowed aggressively
- Paid zero taxes on his house gains
While Sarah:
- Didn't borrow, and
- Paid 27-42% yearly on her investment gains
In other words, Peter played the right game for Denmark. Sarah didn't.
In other countries like the US, UK, or elsewhere in Europe, Peter wouldn't get to borrow as much, and then would pay 30%+ on the gains. Sarah, in contrast, would be much better off as her investments would be taxed much less heavily and only at the sale.
So - In conclusion, at least for the last ten years, the right strategy - Peter's strategy - to become rich in Denmark has been to:
- Buy the most expensive house you can, and do it as early as possible
- Sell, pay no taxes and, buy, again, the most expensive house you can again
- Repeat
Does it mean that you need to get into real estate?
π€·βοΈ Maybe? In investing circles, it's always said that "past performance is not a guarantee of future results". I can't fathom that real estate prices would keep rising the way they did, but - hey - who knows...
But it's unquestionable that it was the right call the last decade. (And there's a lot of people who's situation looks like Party Peter's.)
π What I'm Doing Myself
Personally, I like a third approach - you could call it the "Have It All" Approach. ("Have It All" Hans' Approach, to follow the naming convention above π):
- Buy real estate, also maxing out the loan - (but only after a good dose of due diligence, and only if for a good deal), and also
- Build an investment portfolio, using the lower-tax options (Aktiesparekonto) and only up to the point it makes sense (1-2m kr.)
- (Spoiler for a Future Video) Invest in yourself and/or build a business
But I'm also a bit conservative. I'm still in my (owned) two-bedroom apartment, and - though I would like some more space - I couldn't get myself to move out yet... Let's see.
