Rental Housing as an Investment: A Comparative Analysis from 2015 to 2024

Abstract

This thesis investigates the profitability of investing in property for rental in Oslo over the period from 2015 to 2024 and compares this to investments in mutual real estate funds and bank deposits. The background for the analysis is the ongoing debate about the profitability for landlords and changes in regulations. The analysis investigates profitability across three areas for one-, two-, and three-room apartments by estimating annual cash flows from rental income and the net proceeds from the sale of the property. These are based on estimated prices for comparable apartments, reported rental prices, and associated costs. These results are then compared to investments in equities to determine which would have been the best choice. Both options are evaluated after tax and relevant costs to determine the net return on equity. Accordingly, the thesis is driven by the following problem statement: “How does the profitability of rental property investments in Oslo from 2015 to 2024 compare to passive financial investments in mutual funds or bank deposits, and what role do leverage, property size, location, and purchase timing play?” Our findings show that investment in secondary housing overall has been profitable. Without leverage, small one-room apartments were the most profitable. For larger apartments, units in the outer districts where a higher share of the return came from rental income, were more profitable than centrally located units. Still, all were outperformed by investments in mutual funds during the period. When financed with debt, this changed: at a 60% debt level, returns nearly doubled for all property investments, outperforming mutual funds. This thesis therefore concludes that investment in property for rental has been profitable, and that profitability is affected by several factors, with leverage being the most decisive. For active investments to be the most profitable, the investor needed to increase the risk to outperform fund investments during the period 2015-2024