How Expensive is Iceland

13 comparisons between Reykjavik, San Francisco and the rest of the USA

How expensive is Iceland? Iceland has a reputation of being an expensive place to live in, but just how expensive and compared to what? I am going to compare Reykjavik to an expensive place in the US (San Francisco) and the USA as a whole when possible to answer this question.

It’s always a bit tricky to compare two places that are using a different currency. I’ll be using the average February exchange rate for the last 5 years which is 1 USD = 125 ISK.

1 Cost of living, Singles: Reykjavik is 5.3% more expensive than San Francisco and 33% more expensive than an average small city in the US


According to the Ministry of Welfare’s cost of living calculator, a single person in Reykjavik spends $22.712 / 2,838,972 ISK a year, that’s $1,893 / 236.581 ISK a month, on necessities which includes everything except housing and taxes.  That’s a bit more expensive but pretty comparable to living in San Francisco where your same single person has to dish out $21,564 / 2,695,500 ISK each year, or $1,797 / 224,625 ISK a month.

The source for the US numbers is from the Economic Policy Institute’s 2015 Family Budget Calculator, but since they don’t calculate the average for the whole of the US, I chose a small city in an average state, Charlottesville Virginia. Living there as a single person is going to cost $17,064 / 2,133,000 ISK each year or $1,422 / 177,750 ISK a month.

The Economic Policy Institute’s calculator includes housing and taxes but since the Icelandic one does not, I’ve remove those entries from the values for San Francisco and Charlottesville.

Surprise, Reykjavik is the most expensive, beating San Francisco for that dubious honor. Here’s the line up from most expensive to least expensive:

  1. Reykjavik: $1,893, 5.3% more expensive than San Francisco, 33% more expensive than Charlottesville.
  2. San Francisco: $1,797, 5.0% less expensive than Reykjavik, 26% more expensive than Charlottesville.
  3. Charlottesville: $1,422, 25% less expensive than Reykjavik, 21% less expensive than San Francisco.

Worth noting is that you have to pay out of pocket for various things in the US which is provided for free or heavily subsidized in Iceland such as health care, education, childcare, some forms of insurance etc. Property taxes are also much lower in Iceland although the income tax is higher as well as the VAT (a form of sales tax).

Sources: Economy Policy Institute, Iceland Ministry Of Welfare.

2 Cost of living, Family of Four: Reykjavik is 4.6% less expensive than San Francisco but 8.2% more expensive than an average small city in the US

Reykjavik family

What about the children? Does having children change the calculations in favor of another place? In San Francisco, a family of four (2 adults and 2 children) has to spend, according to the same calculator as in step 1, $55,824 / 6,978,000 ISK a year for necessities or $4,652 / 581,500 ISK per month. The same family will have to dish out  significantly less in Charlottesville, Virginia or $49,140 / 6,142,500 ISK a year, $4,095 / 511,875 ISK a month. The same numbers for Reykjavik are $53,202 / 6,650,280 ISK each year, or $4,434 / 554,190 ISK a month. Let’s line them up.

  1. San Francisco: $4,652, 4.9% more expensive than Reykjavik, 13% more expensive than Charlottesville.
  2. Reykjavik: $4,434, 4.6% less expensive than San Francisco, 8.2% more expensive than Charlottesville.
  3. Charlottesville: $4,095, 12% less expensive than San Francisco, 7.6% less expensive than Reykjavik.

Clearly having children in Reykjavik evens the numbers a bit, this is where the welfare state starts kicking in.

Sources: Economy Policy Institute, Iceland Ministry Of Welfare.

3 Income: Income in Reykjavik is 7% higher than the median US income, but 26% less than the San Francisco median income

Reykjavik income

The median San Francisco household income is $75,604 / 9,450,500 ISK, that’s not enough to afford the median house from step 3. The national median US household income is somewhat less at is $51,939 / 6,492,375 ISK.

Iceland Statistics does not calculate median income per household but per working age person so we need to find the definition of what a “household” is and how many working individuals that would make in the US. According to the US Census there are 2.62 persons to a household. Of the whole population, 24% were under 18 so we won’t count them. That leaves  1.99 working age individuals per household. The labor force participation stands at 62.7%. Based on these numbers there are  around “1.25” employed individuals per US household. Using the Icelandic way of measuring income, that makes $60,483 / 7,560,375 ISK per working individual in San Francisco and $41.551 / 5,193,900 ISK for the median US worker.

Unfortunately, Iceland Statistics does not differentiate income by region so we’ll have to use the income numbers for the whole of Iceland. I would expect the income in the capital to be a bit higher than the national median.

Iceland has a much higher labor force participation rate than the US at 80.1% and a different household composition. In Iceland, a household is composed of on average 1.6 working age adults. With labor force participation at 80.1% that makes 1.28 working adults per household. The median income per fully employed individual is  $43,584 / 5,448,000 ISK. Multiplying that by 1,28 to get the household income comes to $55,788 / 6,973,440 ISK, pretty comparable to the median US. This income is, incidentally, also not enough to buy that house from step 4.

Let’s line it up:

  1. San Francisco: $75,604, 36% more than Reykjavik, 46% more than the US median.
  2. Reykjavik (Iceland): $55,788, 26% less than San Francisco, 7.4% more than the US median.
  3. US Median: $51,939, 31% less than San Francisco, 6.8% less than Reykjavik.

Sources: US Census Bureau, Iceland Statistics

3 Housing Cost: Reykjavik has the lowest housing cost, 66% lower than San Francisco  and pretty much on par with the US average (0.4% lower)

Reykjavik housing cost

Using’s international cost of living calculator and adding together utilities and rent for a 85m2 / 914 ft2 apartment outside the city center.

In San Francisco, rent for a 3 bedroom apartment outside the city center is going to cost you on average around $4,648 / 581,000 ISK a month. That’s simply crazy. Utilities for a modest apartment are a reasonable $117 / 14,625 ISK a month though. Combined that’s $4,765 / 595,625 ISK a month.

On average you can expect to pay $1,467 / 183,375 a month for a 3 bedroom apartment / house in the US, and $148 / 18,500 ISK for utilities a month. Combined that’s $1,615 / 201.875 ISK a month on average in the US.

In Reykjavik you’re going to spend $1,500 / 187,500 ISK for that 3 bedroom apartment outside the city center and $109 / 13,625 ISK on utilities. Combined that’s $1,609 / 201,125 ISK.

Let’s line the numbers up:

  1. San Francisco: $4,765, 195% more than the US average, 196% more than Reykjavik.
  2. US average: $1,615, 66% less than San Francisco, 0.4% more than Reykjavik.
  3. Reykjavik: $1,609, 66% less than San Francisco, 0.4% less than the US average.

Sources: Iceland Statistics, Economic Policy Institute

4 House Prices: Reykjavik is 32% less expensive than San Francisco but 205% more expensive than the US median

Reykjavik house prices

In San Francisco, the median (50% are more expensive, 50% are less expensive) house price is $841,600 / 105,200,000 ISK. Compare that to a very reasonable national US median of $188,900 / 23,612,500 ISK. Icelandic Statistics does not calculate median home prices so I took it upon myself to write down every single detached single family home for sale on the most popular online real estate advertising platform and calculated the median. The median price for a single family dwelling in Reykjavik is $576,000 / 72,000,000 ISK. Not quite as expensive as San Francisco but way more expensive than the national US median.

I chose single family dwellings because even though in Iceland you have a much larger selection of condominiums, duplexes etc. that you can get for a lot less than a single family dwelling, I believe the most common housing form in the US is a single family unit so to keep the comparison more accurate that’s what I chose. Just as a note, a good condominium/multiple units housing can be had for around $280,000 / 35,000,000 ISK in Reykjavik. Another interesting factoid; house prices in Reykjavik have been marching up for a while after taking a nose dive during the financial crisis. Compared to the income index, we’re roughly at the same place we were back in 2005.

Here’s the line up:

  1. San Francisco: $841,600, 46% more expensive than Reykjavik, 346% more expensive than the US national median.
  2. Reykjavik: $576,000, 32% less expensive than San Francisco, 205% more expensive than the US national median.
  3. US national median: $188,900, 76% less expensive than San Francisco, 67% less expensive than Reykjavik.

Sources: Business Insider,

5 Mortgage Payments: Taking a loan in Reykjavik for the house in step 4 is 2.6% more expensive than in San Francisco and 244% more expensive than on average in the US

Reykjavik mortgage payments

Paying for that median home mortgage (30 year loan) will set you back $3,684 / 460,500 ISK a month in San Francisco. The same median house in the US is only a fraction of that or $1,098 / 137,250 ISK. Using Iceland’s biggest bank’s online mortgage calculator, in Reykjavik you have to shelve out $2,787 / 348,377 ISK a month. Please keep in mind that the loans for each location are for the house prices defined in step 4, so you are getting a much more expensive house in San Francisco than in Reykjavik or the US average.

There’s a catch to the Icelandic mortgage. Icelandic loans are inflation indexed. In essence this means that every month the bank applies the current inflation percentage to the principal and lends it to you, effectively adding it to the principal, it’s sort of like a loan where you don’t have to pay all the interest up front each month to begin with. This causes the loan principal to increase rather than decrease for more than half of the lifetime of the loan. The only reason these loans ever get paid back is because the repayment is also inflation indexed. At the end of the loan, with an average 2% inflation, you will be paying back $4,770 / 596,298 ISK a month. Let’s use the average of those two numbers, $3,779 / 472,336 ISK and hope your salary has kept up with inflation during those 30 years.

To add insult to injury, mortgage interest is not tax deductible in Iceland. There’s a very good reason to pay back your loan as quickly as you can here, even though this is exceedingly rare. Clearly, taking and keeping a mortgage in Iceland is a poor financial decision.

Lets line them up:

  1. Reykjavik: $3,779, 2.6% more expensive than San Francisco, 244% more expensive than the US median.
  2. San Francisco: $3,684, 2.5% less expensive than Reykjavik, 236% more expensive than the US median.
  3. US median: $1,098, 71% less expensive than Reykjavik, 70% less expensive than San Francisco.

Sources: Business Insider, Landsbankinn

6 Income Taxes: Reykjavik has a heavier tax burden but it is unclear if you are getting a better deal in Reykjavik than the US considering the small difference and the services you get for your taxes

Reykjavik income tax

Iceland is much more of a welfare state than the US and this reflects the most in taxes. One thing to note about the Icelandic income tax system is that there are practically no deductions, you pay the amount stated, almost nothing is deductible. There’s no annual fat check from the tax authorities, in fact half the time you owe them, the other half there’s a meager $20 direct deposit or something similar.

Let’s calculate taxes based on the median Icelandic income of $55,000 / 6,875,000 ISK. We’ll be using the state tax laws of California for San Francisco and Virginia for Charlottesville.

In Reykjavik (and the rest of Iceland), using this online income tax calculator provided by the national tax authority, a person making $4,583 / 572,875 ISK a month (that’s $55,000 / 6,875,000 ISK annually) will take home $3,161 / 395,094 ISK. Note that this includes a lot of services such as child care, health care as well as pension savings.

Using this income tax calculator for California, an individual making $4,583 / 572,875 ISK a month will take home $3,466 / 433,250 ISK. This does not include health care insurance though. On the other hand, it also does not include any deductions. Also consider that the Icelandic taxes include local (municipality) taxes whereas the California calculations do not. In light of all this I’m going to add 50% of a modest health care insurance to the tax burden, or $137 (source), bringing the take home amount in San Francisco to $3,329 / 416,125 ISK.

Using this income tax calculator for Virginia and applying the same health care premium, your take home pay is slightly less at $3,272 / 409,000 ISK.

Here’s the tax burden line up:

  1. Reykjavik: $1,422, 8.4% more than Charlottesville, 13.4% more than San Francisco.
  2. Charlottesville: $1,311, 7.8% less than Reykjavik, 4.5% more than San Francisco.
  3. San Francisco: $1,254, 11.8% less than Reykjavik, 4.3% less than Charlottesville.

7 Gasoline prices: Gas in Reykjavik is 229% more expensive than the average US gas price, 124% more expensive than the average San Francisco price

Reykjavik gas prices

Gas prices are at $2.5 per gallon in San Francisco and $1.7 on average in the US. Of course, no one outside the US will understand what that means so internationally, the price per liter of gas is $0.66 / 82 ISK in San Francisco, $0.45 / 56 ISK on average in the US. Compare that to an average price of  $1.48 / 185 ISK per liter in Reykjavik (that’s $5.61 / 701 ISK per gallon, I can hear you gasp Lynne).

  1. Reykjavik: $1.48/L ($5.61/G), 124% more expensive than San Francisco, 229% more expensive than the US average.
  2. San Francisco: $0.66/L ($2.5/G), 55% less expensive than Reykjavik, 47% more expensive than the US average.
  3. Average US: $0.45/L ($1.7/G), 70% less expensive than Reykjavik, 32% less expensive than San Francisco.

Sources: San Francisco Gas Buddy, Orkan, ÓB, Shell, N1

8 Dining: Reykjavik is 35% less expensive than San Francisco but 30% more expensive than the US average

Reykjavik dining

Dining at a mid-range restaurant in San Francisco is going to take you back $75 / 9,375 ISK, which is double the national average of $37 / 4,625 ISK. In Reykjavik you can get a very decent mid-range restaurant deal at around $48 / 6,000 ISK. Keep in mind that the number of tourists in Reykjavik has exploded in the last few years, driving up restaurant prices. Also of note is that the price you see on the menu is the final price, including tipping. Tipping is not customary in Iceland as waiters are other staff are paid a decent wage. Let’s line it up

  1. San Francisco: $75, 56% more than Reykjavik, 102% more than the US average.
  2. Reykjavik: $48, 35% less than San Francisco, 30% more than the US average.
  3. US average: $37, 51% less than San Francisco, 23% less than Reykjavik

Sources:, various Icelandic restaurant home pages (online research)

9 Alcohol prices: Reykjavik is a very expensive place to buy booze in, 115% more expensive than San Francisco, 143% more expensive than the US average

Reykjavik alcohol prices

Alcohol prices in Iceland are very high. There are two main reasons for this; government policy and shipping/import costs. It has been a part of Iceland’s public health policy to restrict both access to alcohol as well as keep it expensive through taxation. Let’s look at some numbers. Let’s take a standard 500ml glass of domestic beer and a 750ml bottle of Absolut vodka. In San Francisco, a reasonable glass of beer is $6 / 750 ISK. That same glass of beer would cost you on average $4 / 500 ISK in the US. In Reykjavik a glass of beer costs $8 / 1,000 ISK.

What about something stronger. In San Francisco you can expect to pay $20 / 2,500 ISK for a 750ml Absolut Vodka bottle. On average in the US, Absolute Vodka costs pretty much the same, $19 / 2,375 ISK. In Reykjavik you will have to shelve out a whopping $48 / 5,999 ISK. This is the reason why I never buy alcohol in Iceland but prefer to make my own.

Let’s create a shopping basket containing one 500ml glass of domestic beer and a 750ml bottle of Absolut Vodka and line them up:

  1. Reykjavik: $56, 115% more than San Francisco, 143% more than the US average.
  2. San Francisco: $26, 54% less than Reykjavik, 13% more than the US average.
  3. US average: $23, 59% less than Reykjavik, 12% less than San Francisco.

Sources:, Vínbúð, ABC Stores

10 Groceries: Reykjavik is a bit pricey, but still 14% less expensive than San Francisco, but 30% more expensive than the US average

Reykjavik groceries

Food is definitely more expensive in Iceland than in the US. It follows logically from its remote and isolated location. Most things have to be shipped in. But why? One thing you have to realize is that Icelandic agriculture is incredibly marginal. Being just south of the arctic circle, we have long (albeit mild) winters with little sunlight. That means for the majority of the year, nothing will grow here without a lit up greenhouse (which is much more expensive). As for the summers, the temperature never gets really high enough to support a fast growth rate. For these reasons Icelandic agriculture has historically and still is mostly about growing grass to feed animals. We turn something that does grow relatively easily (grass) into protein, that is meat and dairy. As a fun fact, Iceland can only support one meager potato crop a year. I even remember a few years when the potato crop almost completely failed because of summer frosts.

The US on the other hand has some of the most productive land and favorable growing climates in the world, not to mention the transportation infrastructure where nothing has to be shipped over oceans. No wonder that food in the US is cheaper than on a frigid island in the middle of the north Atlantic.

To compare food prices I’m going to create a shopping basket composed of ingredients you’d need to make a simple chicken dinner; chicken breasts, peppers, cheese and butter.

Here’s the ingredient list for San Francisco; Chicken: $13.77 per kilo ($6.25 per pound), cheese: $15.65 per kilo ($7.1 per pound), peppers: $6.81 per kilo ($3.1 per pound), butter $10.56 per kilo ($4.79 per pound). To make the calculations easier let’s get a kilo of each ingredient. Our whole (and a bit unnatural) shopping cart would be $46.74 / 5,843 ISK in San Francisco.

Here are the same ingredients with average US prices: Chicken $8 per kilo ($3.63 per pound), cheese $9.59 per kilo ($4.35 per pound), peppers: $5 per kilo ($2.28 per pound), butter: $8.26 per kilo ($3.75 per pound). Our average US shopping basket costs $30.85 / 3,856 ISK.

Here are the same ingredients in Reykjavik; Chicken: $16 per kilo ($7.26 per pound), cheese: $13.88 per kilo ($6.3 per pound), peppers: $5.47 per kilo ($2.48 per pound), butter: $4.99 per kilo ($2.26 per pound). Our shopping basket in Reykjavik costs $40.34 / 5.043 ISK.

Let’s line them up:

  1. San Francisco: $46.74, 16% more than Reykjavik, 52% more than the US average.
  2. Reykjavik: $40.34, 14% less than San Francisco, 30% more than the US average.
  3. US average: 30.85, 34% less than San Francisco, 24% less than Reykjavik.

Do take into account that Iceland has one of the lowest use of animal husbandry antibiotics use in Europe, which is already much lower than in the US. Also the farms in Iceland are much smaller than the ones in the US. We still don’t have factory farms over here.

Source: United States Department of Agriculture, Iceland Statistics, Online Research, Shopping Research

10 Childcare: Reykjavik is by far the least expensive option, whopping 84% less expensive than San Francisco and 73% less expensive than the US average

Reykjavik childcare

To compare childcare costs I’m going to compare preschool prices for a 4 year old child attending 5 times a week with meals included. A reasonable price for preschool in San Francisco is quite high at around $1,300 / 162,500 ISK.

On average in the US, a price somewhere around $750 / 93,750 ISK is the norm.

In Iceland, a child is eligible for preschool between the ages of 2 – 6 (just before school). If there’s a pressing need, the child can be as young as ~10 months. Preschools have to provide food as well and the vast majority of children go there 5 times a week. The city of Reykjavik runs most of the preschools within the city limits and charges a unified amount which is currently $202 / 25,280 ISK. Private preschools exist but get most of their funding through the city.

Let’s line them up:

  1. San Francisco: $1,300, 73% more expensive than the US average, 544% more expensive than Reykjavik.
  2. US average: $750, 42% less expensive than San Francisco, 271% more expensive than Reykjavik.
  3. Reykjavik: $202, 84% less expensive than San Francisco, 73% less expensive than the US average.

Sources: Online research for San Francisco, National Association of Child Care Resource & Referral Agencies, Reykjavik City

11 Health care costs: Welfare Reykjavik wins the prize, 90% less expensive than San Francisco and 87% less expensive than the US average

Reykjavik health care

The average monthly health insurance premium for a person living in San Francisco is $438 / 54,750 ISK. Now that’s not the whole story because whenever you do have to go see a doctor or need surgery or any medical services you have to pay a part of it out of pocket. The average out of pocket expenditure in San Francisco is around $330 / 41,263 ISK a month, which brings the monthly total health care cost to $768 / 96,000 ISK. The average cost of health care insurance in the US is $293 / 36,615 ISK a month, with average out of pocket expenses at $275 / 34,373 ISK bringing the US average total health care cost to $568 / 71,000 ISK.

There are no insurance premiums in Iceland, it is all included in your taxes. The only health care expenditure is the co pay which is capped at a certain amount. Using the Ministry of Welfare’s cost of living calculator we can see that the average single person spends a total of $76 / 9,472 ISK a month on all health care related services.

Let’s line them up:

  1. San Francisco: $768, 35% more than the US average, 911% more than Reykjavik.
  2. US average: $568, 26% less than San Francisco, 647% more than Reykjavik.
  3. Reykjavik: $76, 90% less than San Francisco, 87% less than the US average.

Source: WebMD, Iceland Ministry of Welfare,, Kaiser Family Foundation

12 Employment: Reykjavik has the lowest total unemployment, 71% less than the US average and 39% less than San Francisco

Reykjavik employment

Normally, the government calculates the unemployment rate by performing a survey and asking people if they are employed and if not, if they are looking for a job. If they are not actively looking, they will not count towards the unemployment rate. To get a clearer picture of exactly how many people are not working it would be helpful to get an unemployment number that shows exactly the percentage of working age individuals that are not working. This unemployment number is always going to be higher than the one usually provided and will include people that can’t work, disabled people for example, but also people that have given up on looking for a job.

The labor participation rate in San Francisco is currently 88%, much, much higher than the US average. The unemployment rate in December 2015 is at 3.3%. Combining these numbers we arrive at a total unemployment rate of 3.75% which is pretty good.

The picture for the whole of the US is not as rosy. With labor participation at only 63% and unemployment at 5% in December 2015, the total unemployment rate is 7.9%.

Iceland in general has a much higher labor participation rate than the US average. Unfortunately Iceland Statistics does not provide labor participation rates for Reykjavik alone so we’ll have to go with the national one. The labor participation in Reykjavik is probably higher than the national one because it is the capital and there are regions outside the city that are not doing as well economically. For the whole of Iceland, the labor participation is 81%, unemployment was 1.9% in December 2015, taken together the unemployment rate is 2.3% nationally.

Let’s line them up:

  1. US average: 7.9%, 111% more than San Francisco, 243% more than Reykjavik.
  2. San Francisco: 3.75%, 53% less than the US average, 63% more than Reykjavik.
  3. Reykjavik: 2.3%, 71% less the US average, 39% less than San Francisco.

Sources: Iceland Statistics, United States Census, State of California Employment Development Department

13 Income Equality: Reykjavik is much more egalitarian than San Francisco and considerably more egalitarian than the US average

Income equality in Iceland

The Gini coefficient is a measure intended to represent the income distribution of a nation, and is the most commonly used measure of inequality. A Gini coefficient of zero means perfect equality where everyone has exactly the same income. A Gini coefficient of one expresses complete inequality where only one person has all the income and all others have none.

California as a whole has one of the lowest Gini coefficient of all US states (meaning it is more equal) at 0.471, San Francisco is a somewhat less equal than the rest of California and has a Gini coefficient of 0.51.

The average US Gini coefficient is a bite more equal at 0.45.

Perhaps not surprisingly, Iceland has a far more equal wealth distribution, having a Gini coefficient at 0.28.

Let’s line them up:

  1. San Francisco: 0.51, 13% less equal than the US average, 82% less equal than Reykjavik.
  2. US average: 0.45, 12% more equal than San Francisco, 61% less equal than Reykjavik.
  3. Reykjavik: 0.28, 45% more equal than San Francisco, 38% more equal than the US average.

Sources: United States Census, Wikipedia, The World Bank


Reykjavik in the evenings

Rental Property Disasters

No investment is safe. Even storing physical cash is not without risk (from both inflation, theft, fire etc.). Buying property and renting it out is also not risk free. The most obvious thing people think about when they hear the words rental property disasters are poor tenants.

Poor tenants

Poor tenants come in a varying grade of bad. The most benign bad tenant does pay his or her rent every month but handles the property very roughly. The worst kind of tenant is on the other side of the poor spectrum, both not paying rent and damaging the property.

We have been very fortunate with our tenants. They always pay on time and treat the properties well. We’ve decided to foster a positive and rewarding atmosphere. For Christmas we gave our tenants a 10% discount on the rent (a significant sum here in Reykjavik) and we always try to respond promptly and sometimes preemptively to complaints or repair requests. In this way we hope to minimize risk. The risk being resentment and the damage that can potentially cause.

Unexpected maintenance

There are other types of rental property disasters when owning and that has to do with the property itself. I’m talking about maintenance and in some cases, the lack of maintenance that causes major repairs to be necessary down the line.

Unfortunately we have been hit with the second type of rental property problems. Like almost all houses in Iceland, the rental property we bought is a 100% rebar reinforced concrete building. They do last a very long time but not indefinitely as water and the constant thawing and freezing conditions in Reykjavik can slowly corrode away the concrete and strike at the very core of the outer walls. When we bought the apartment we were aware that there was going to be some maintenance work necessary for the outside of the house and we even got an inspector to inspect this for us. However, the damage turned out to be more extensive than anticipated (not just surface damage).

Our situation

The house association spoke about starting repairs early last year. Nothing happened last year so we decided to take matters into our own hands and contacted a specialist in this field who, offhandedly quoted $150,000. Of course we don’t have to pay all that money ourselves. Our apartment is only 16% of the whole house so our share would be $24,000. It’s manageable but my main worry now is that I need to convince the other owners (who own a larger share of the whole house) that this needs to happen right now. I’ve asked for a meeting next week where I am going to try to convince everyone that if this does not taken care of right away, they may be looking at irrecoverable damage and that they will be sitting on a worthless property. In any case I am worried that it might be too late already.

The next thing we will have to do after everybody (or at least the majority) is on board is to secure a loan on behalf of the house association while at the same time we need to have the property inspected thoroughly for this particular kind of repairs and collect quotes. Then when everything is ready we should have the repairs started as soon as possible, even next month if at all possible.


Reykjavik Pond - Lots of Real Estate

Our Financial End Goal

Before writing many more posts on this site I think it would be helpful if we sat down and defined what it takes to be able to declare financial independence. I have to be honest and tell you that we have not actually done this thoroughly enough. Writing this post will be exactly what we need to define our financial end goal in more detail.

To be able to know how much you need to save to retire, you first need to know how much money you will need every month. Almost all financial advisers would tell you that your retirement earnings should be a percentage of your current income. I don’t find that particularly helpful. I think it’s much more helpful to calculate based on how much you actually need (or want) per month. With that in mind let’s jump right into a monthly “needs” calculation:

  1. Food: $750 / 95,000 ISK
  2. Utilities: $190 / 24,000 ISK
  3. Property taxes: $390 / 50,000 ISK
  4. Maintenance: $395 / 50,000 ISK
  5. Insurance: $160 / 10,000 ISK
  6. Transportation: $155 / 20,000 ISK
  7. Hobbies and life:  $700 / 90,000 ISK
  8. The unexpected aka the buffer: $400 / 50,000 ISK

Sum per month: $3,140 / 398,309 ISK

That’s a bit more than I thought it would be but I’m also being rather cautious. We currently spend maybe 1/2 to 2/3 this much every month. I’d rather be safe than sorry though.

Lets break the needed income into revenue from savings or rental property. Our current plan is to buy or build real estate to rent out. We currently have 2 properties, planning for the 3rd one:

  1. Gross: Apartment in Reykjavik rent: $1,060 / 135,000 ISK
  2. Gross: Guesthouse in Reykjavik rent: $630 / 80,000 ISK

For each rental property we have to pay 17% tax and then there’s always some maintenance. It’s very difficult to plan maintenance but a good rule of thumb is that you should estimate maintenance as 1% of the purchasing price of your property annually. Since these are rental properties the number should be a bit higher. In our case it turns out to be 22% of the rent so taken together with taxes it comes to 39%, so after taxes our rental income looks like this:

  1. Net: Apartment in Reykjavik rent: $647 / 82,350 ISK
  2. Net: Guesthouse in Reykjavik rent: $383 / 48,800 ISK

For a total sum of  $1,030 / 131,150 ISK, so we still have $2,110 / 268,772 ISK to go! That’s 3 more small apartments. Some more effort is needed to make this work. We only have two options: settle with less money monthly or increase the time range. Buying 3 more small apartments is going to take 9 years of monthly $3,900 / 500,000 ISK payments. By that time we will be slightly older than 40 (43). Not that far off though. It’s quite a generous monthly retirement paycheck if you ask me, way more than we currently spend even in December which is our most expensive month.

Looking at the numbers I realize that the rent is generating a very comfortable 5.5% return on investment after taxes. That’s much more than we would ever see on a savings accounts. It’s also considerably more than I can see on any of the investment fund options available here, at least the ones that are relatively safe. We will not invest in risky investment options, period. I can still remember relatives and friends loosing all their savings during the financial crisis, only because they had invested their savings in stock, index or money market funds. The domestic stock market did not just take a little dive like in the US, it was wiped out!

Lets see if we figure something out or realize an error in our calculations in the coming posts that will enable us to reach our financial freedom goal earlier than by 43.

Paying Extra on Our Mortgage

Today I am going to go to the bank. I’m paying extra on our mortgage. $2,726 to be exact, that’s 350,000 ISK in the local currency. By going to the bank I mean doing it at my computer, at work, during lunch. Here’s what it looks like.

Paying extra on our mortgage using our online bank
Paying extra on our mortgage using our online bank

It’s a bit less than we normally do. Our plan is to make regular monthly payments of $3,850 (500,000 ISK), and ideally we’d like to make payments of $5,000 (650,000 ISK). There are a couple of reasons why we are paying less than we would like to. The main reason is that I’m currently the only one working. Ben is doing some freelance here and there but his main job is to take care of Daníel, which is a full time job with freelance on top.

Another reason for is that we seem to keep getting hit with unexpected expenses almost every month, running 6 months now. This latest one is a huge hot water utility bill (yes, hot water is delivered to homes in Iceland and is used for heating and general warm water uses). We ourselves use hot water with care. I suspect it’s our tenant that’s blasting hot water through the radiator system. We made one big mistake when we rented out our guest house and that is we didn’t make utility payments a part of the monthly rent. In the future we will make sure that the utility expenses are included and reflect the guest house’s share of the total square area. This will encourage people to use resources more wisely. In any case it’s too late for the current tenant for now but you always learn.

Success! And poor English.
Success! And poor English.

Why pay down the mortgage?

Why are we paying extra on our mortgage rather than investing in stocks or putting our money in a savings account? There are several in our eyes excellent reasons for this. The number one is security. Investing in real estate is one of the few investments that survived the financial crisis in 2008. The whole stock market collapsed and I’m not just talking about it going down by several percentage points, I’m saying that most (if not all) of the companies listed there and all the funds traded there went bankrupt. We would have been back to square one.

The other reason is that we are living under capital controls. We can’t invest in foreign stock markets. I’m sorry but I can’t view the domestic stock exchange with less than 20 companies as diversified enough, let alone a safe retirement option. The grandmother of a friend of mine summed it up nicely the other day. She’s from a well off family and had several investments of various types: Of all my investments, only concrete has proven reliable (most houses are made of poured concrete here).

How can we pay so much extra?

How are we paying able to so much extra towards our principal every month? Its not an exact science. We didn’t decide one day that we were going to take such a large part of our salary aside and repay our mortgage with it. It started much smaller but snowballed along the way. We like to consider every large purchase we make an investment if at all possible. That’s one of the main reasons why we bought our house (it had a guest house we could rent out). Repaying the mortgage early is a good investment in our eyes. It saves us years of interest payments (remember that we can not get anything back from taxes here in Iceland) – and it reduces our inflation risk by a huge amount (remember as well that our mortgage is inflation linked).

Taken together, our decisions have caused us to have low monthly expenditures, but has steadily increased our monthly income.

The current tally

Whenever the last post is in a previous month I’ll include the repayment tally like the one below:

  • Assets: $459,446 
    • Real estate: $455,506 / 56,938,190 ISK
    • Cash Savings: $3,839 / 479,867 ISK
    • Stocks: $101 / 12,625 ISK
  • Debt: -$130,492 
    • Mortgage: -$130,460 / -16,307,456 ISK
    • Credit Cards: -$32 / -4,031 ISK

Sum: $328,954 (Up 1.5%)