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  #81  
Old 10.01.2017, 23:57
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Re: Mortgage tips and risks

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I'm reading some economic conspiracy theory blogs, and there they are saying that governments will lower the debt by having a few years of controlled inflation, which will be stimulated by printing money and then subsidizing the poorest people with social help programs. They also say that the official US CPI is fake and they advise to follow sth called shadow stats, according to which the current real US inflation is apparently around 9%.

http://www.shadowstats.com/alternate...flation-charts
It's not very far from the truth.

We will inevitably enter a cost inflationary and therefore a debt deflationary period. Effectively the savers will once again bail out the borrowers, first they bailed them out when interest rates were lowered and again when inflation eats up purchasing power.

The only benifactors? The 1% who have the majority of their wealth in fixed assets and the stock market.

There is a good book explaining all of this by Michael Hudson called Killing the Host (https://www.amazon.com/Killing-Host-.../dp/3981484282)
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  #82  
Old 11.01.2017, 00:05
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Re: Mortgage tips and risks

One final note on the advice bit, I'd be very careful with advising friends with major decisions like this.

You can only make them aware of the risks and the potential pitfalls, they have to weigh that up themselves and make the decision without your influence.
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  #83  
Old 11.01.2017, 12:20
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Re: Mortgage tips and risks

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One final note on the advice bit, I'd be very careful with advising friends with major decisions like this.

You can only make them aware of the risks and the potential pitfalls, they have to weigh that up themselves and make the decision without your influence.
Definitely a good tip. After this topic I will be more cautious with recommendations. But still, if their only alternative is savings account, then maybe a moderate mortgage is not the worst idea, taking into account the tax savings.

Talking about tax savings, which option is better? If they have 300'000 and buy a flat worth 900'000:
  • put all 300'000 as capital and take 600'000 mortgage
  • put only 200'000 as capital and take 700'000 mortgage, keep 100'000 for emergencies

In case 2, is there a low risk fixed income investment with better returns than savings account? Also, after you take the mortgage, when you acumulate savings, is it better to:
  • use savings to reduce the mortgage each month
  • not pay off the mortgage at all, investing the savings into some fixed income investment
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  #84  
Old 11.01.2017, 13:01
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Re: Mortgage tips and risks

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Given the current debt-load of governments and businesses, I cannot imagine a world with a 15% interest rate. At least, all other things equal.

There would have to be an absolutely crushing amount of inflation, that would quickly deplete the middle-class of all their belongings, down to the last Rappen.

But as previously said: if you think it's inconceivable: think again.
So, I'm not ruling it out completely.
If there's going to be crushing inflation, property may well be one of the safest places to park your money.
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  #85  
Old 11.01.2017, 13:14
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Re: Mortgage tips and risks

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Talking about tax savings, which option is better? If they have 300'000 and buy a flat worth 900'000:
  • put all 300'000 as capital and take 600'000 mortgage
  • put only 200'000 as capital and take 700'000 mortgage, keep 100'000 for emergencies
Case 3: Rent and make a decision with the 300k based on future personal needs, some of those decisions could be to invest for retirement or future generations and some might be just spent on personal development, house renovation, purchases etc (this is what you've been saving for after all!).

The right combination really depends on personal circumstances and personal goals, and most importantly someone qualified that could highlight things that you might not have thought about. It's not free advice but it's money well spent if the result is preventing you from turning a 300k saving pot into 150k black-hole.

Some of the things you are suggesting are referred to as "Picking up pennies in front of the steam roller" by Nassim Taleb (see: Taleb Distribution). In this case buying a house is picking up pennies i.e. savings on rent vs mortgage and the steam roller being the potential correction that may or may not happen.

The point here that someone buying a house is effectively underwriting a bubble burst insurance policy with the premium they receive being the savings they make from rent. I'm no underwriter but assume that a 30% correction happens on average once every 25 years, that's 4% chance of it happening. If you had to buy a policy to cover you for a house price correction of 30% on a 1 million house, the fair value for the premium would be 1 million x 0.3 x 0.04 = CHF12k annually, so every year you're saving 12k and sometime within the 25 years you lose 300k. It's fine if you can take the loss and you plan to stay in the property for a long period of time, but it's not fine if you're doing it just to save on the rent!

What has happened is the low interest rate environment has pushed retail investors with no real understanding / awareness of risk and consequences into buying houses, stocks, derivatives, ETFs, mutual funds etc when they normally wouldn't in a normal environment. This is what the central banks want but the consequences might not necessarily lead to the rosy stimulated full functioning economy, what they have done has pushed asset prices to bubble territory.

Rant over
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  #86  
Old 11.01.2017, 15:03
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Re: Mortgage tips and risks

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If there's going to be crushing inflation, property may well be one of the safest places to park your money.
What will happen is prices will stay the same, or fall less, rather than fall 50%. The stock market is a good hedge against inflation as profits rise when prices increase.
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  #87  
Old 11.01.2017, 15:09
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Re: Mortgage tips and risks

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If you look at rental yields at Numbeo, you will see that in Japan it is 2.2%, Switzerland 3.0%, Germany 3.7%, UK 4.2%, Poland 4.7%, Ukraine 5.3%, USA... 11.2%

https://www.numbeo.com/property-inve...by_country.jsp
Japanese property has been falling for a long time, it's still overpriced by at least 50%. 30 years ago people said prices in Tokyo would never fall, limited supply etc, its different to anywhere else. Then prices fell & fell & fell.
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  #88  
Old 11.01.2017, 18:20
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Re: Mortgage tips and risks

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If you look at rental yields at Numbeo, you will see that in Japan it is 2.2%, Switzerland 3.0%, Germany 3.7%, UK 4.2%, Poland 4.7%, Ukraine 5.3%, USA... 11.2%
Simon Property (SPG), one of the bigger real estate companies, has an earnings yield of about 3% (the inverse of its P/E).

If you could buy at double-digit return you could buy that property and hedge with REITs, SPG or other real estate companies that match yours best and garner a substantial virtually riskless return.

That makes no sense hence those 11% are most probably false.
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Old 11.01.2017, 19:14
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Re: Mortgage tips and risks

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Simon Property (SPG), one of the bigger real estate companies, has an earnings yield of about 3% (the inverse of its P/E).

If you could buy at double-digit return you could buy that property and hedge with REITs, SPG or other real estate companies that match yours best and garner a substantial virtually riskless return.

That makes no sense hence those 11% are most probably false.
Yes I would like somebody to explain to me this 11%. Mind you, that the average is 11%, but in New York it's only 5% and in Detroit it's... 25%. I checked this data on a different website and it looks legit. It needs to have something to do with their regulations. I have seen that they have property tax, which can even be 2%.
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  #90  
Old 11.01.2017, 19:47
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Re: Mortgage tips and risks

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Yes I would like somebody to explain to me this 11%. Mind you, that the average is 11%, but in New York it's only 5% and in Detroit it's... 25%. I checked this data on a different website and it looks legit. It needs to have something to do with their regulations. I have seen that they have property tax, which can even be 2%.
Annual property taxes are huge, 2% or more not unusual, so possibly 3 times the mortgage cost in CH.
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Old 12.01.2017, 00:42
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Re: Mortgage tips and risks

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Yes I would like somebody to explain to me this 11%. Mind you, that the average is 11%, but in New York it's only 5% and in Detroit it's... 25%. I checked this data on a different website and it looks legit. It needs to have something to do with their regulations. I have seen that they have property tax, which can even be 2%.
What's the base? If it's purchase price 50 years ago, as it is in CA, it's insignificant. Always enquire what the base is.

But even if it's based on market price that should merely require higher revenue/rent by the same percentage in order to keep profit margin constant, so 7% instead of 5%. Double-digit still makes no sense if it's based on the property's market value.
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Old 14.01.2017, 19:17
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Re: Mortgage tips and risks

A small afterthought. Some of you said to only buy the flat, if the calculated price-to-annual rent ratio would be below 25x. This means a flat with a montly kaltmiete of 2000 should not cost more than 600'000 to buy. I find these conditions hard to meet.

So if currently the flats are too expensive, what are the alternatives? Currently my friend has a savings account with 0,05% interest rate. I was looking at ETFs which would look least scary to her.



Would you say the risk with a long term Swiss government bond ETF is low? The volatility looks good. Of course, the annualized return of 2.5% is not impressive, but easily beats the laughable 0.05%.
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Old 14.01.2017, 19:26
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Re: Mortgage tips and risks

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A small afterthought. Some of you said to only buy the flat, if the calculated price-to-annual rent ratio would be below 25x. This means a flat with a montly kaltmiete of 2000 should not cost more than 600'000 to buy. I find these conditions hard to meet.

So if currently the flats are too expensive, what are the alternatives? Currently my friend has a savings account with 0,05% interest rate. I was looking at ETFs which would look least scary to her.



Would you say the risk with a long term Swiss government bond ETF is low? The volatility looks good. Of course, the annualized return of 2.5% is not impressive, but easily beats the laughable 0.05%.
If the price of an asset is too high, don't buy anything be patient & WAIT. You don't need to invest today, the idea is to buy low & sell high.

The long term risk of Swiss Bonds is VERY high as interest rates can't really fall long term so the price long term must fall.
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Old 14.01.2017, 19:27
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Re: Mortgage tips and risks

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A small afterthought. Some of you said to only buy the flat, if the calculated price-to-annual rent ratio would be below 25x. This means a flat with a montly kaltmiete of 2000 should not cost more than 600'000 to buy. I find these conditions hard to meet.
It was a question I have myself.
I don't know if the factor is 25 in Switzerland, too.
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Old 14.01.2017, 19:38
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Re: Mortgage tips and risks

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It was a question I have myself.
I don't know if the factor is 25 in Switzerland, too.
Why would you want to pay more than 25 years rent in advance, seems crazy high to me. I won't buy property if it exceeds 18 years rent less any annual taxes payable.

I remember buying central London property for about 8 years rent, seemed very high as Hotels in London were selling on a PE of 4-5 at the time.
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Old 14.01.2017, 20:09
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Re: Mortgage tips and risks

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If the price of an asset is too high, don't buy anything be patient & WAIT. You don't need to invest today, the idea is to buy low & sell high.

The long term risk of Swiss Bonds is VERY high as interest rates can't really fall long term so the price long term must fall.
It may be a long wait until it's low again. Are you really suggesting that holding cash is the best option? Bonds must fall, stocks are at record high, real estate is overpriced.

What about the advice, that most of the time you lose more money by not being in the market?
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Old 14.01.2017, 20:19
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Re: Mortgage tips and risks

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It was a question I have myself.
I don't know if the factor is 25 in Switzerland, too.
I find 25 too high. I would suggest not buying anything that costs more than around 16x annual rent, or say 200x monthly rent (easy to calculate in your head).

EDIT: maybe with the low IR, you could deduct from the price the anticipated savings during the fixed rate period
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  #98  
Old 14.01.2017, 20:49
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Re: Mortgage tips and risks

At least where I live now, property like that simply does not exist.
It's a factor between 350 and close to (or even over) 400 (months of rent).
Though, of course it's very difficult to compare as the rentals don't have the exact same location (but at least a similar age).

The more I look at it, the less sense they all make - but then, both the rentals and especially the for-purchase apartments have been sitting there for some time. It's not like people are lining up to buy them.
But I doubt the owners are buying into the "25x" selling-line (much less "18x" or even "16x"). They are perhaps waiting for the two crazy Russians starting a bidding-war...
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Old 14.01.2017, 20:53
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Re: Mortgage tips and risks

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It was a question I have myself.
I don't know if the factor is 25 in Switzerland, too.
Tons of offers at that 25 factor, i.e. 4% Bruttorendite. Here's one: https://www.homegate.ch/kaufen/106161578, it's even 4.4%, and there's potential to jack the prices up. I don't like the location (I'm looking for something to live in to park my pillar 2 money), but otherwise I'd buy that. Of course something around 5% would be even better, that's a rare find these days. 5-6% used to be more common in the past.
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Old 14.01.2017, 21:00
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Re: Mortgage tips and risks

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Tons of offers at that 25 factor, i.e. 4% Bruttorendite. Here's one: https://www.homegate.ch/kaufen/106161578, it's even 4.4%, and there's potential to jack the prices up. I don't like the location (I'm looking for something to live in to park my pillar 2 money), but otherwise I'd buy that. Of course something around 5% would be even better, that's a rare find these days. 5-6% used to be more common in the past.
Oh, I meant: buy to live in. Not buy-to-let. And only apartments 4.5 rooms or above.
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