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  #61  
Old 10.01.2017, 17:27
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Re: Mortgage tips and risks

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Stocks are probably the best and safest in the long term.
That's what I'm doing myself, but I don't think I could convince her or her parents to buy an ETF.

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If you can find something at a very good price (i wouldn't consider 3% yield in your calculations good; 5%+ is what i'd buy)
So only take a mortgage if she finds a killer deal? Can you actually seriously negotiate the price with a developer of newly build block of flats? They have the prices nicely listed and if you don't buy, they will find another taker. In attractive locations, the apartments get reserved quite fast, even before the building is finished.

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They should still use the historical average whatever that historical average is, the problem is that if they want to lend you money, they will use what you have to pay as interest. If risk free rate is 8% then I would expect them to use whatever IR they charge on your mortgage.
What puzzles me, is that a bank uses a 5% rate to calculate Tragbarkeit, yet is willing to give out a loan at a fixed 1% for 15 years. If they expected a sharp rise, they would not do it, would they? They would be losing money.

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Rent is assumed to be the same. In the same way that rents didn't not reduce when interest rates went down.
So you're saying the absolute rent does not depend on the interest rate? Many of my friends invest their Swiss savings in rental apartments in their country of origin, where apartments are much cheaper (like 1/4), and yields higher (like 6%). If what you're saying is true, then they kind of guarantee themselves constant absolute return, regardless of apartment value fluctuations, right? I myself did not choose this strategy of investing, but it seems it's not so bad.

I thought if mortgage cost goes up, the investors have to offset it by increasing the rent price. Taking the historical average as benchmark, I would imagine banks would charge 5% for mortgage loans, pay 4% for deposits (mortgage - 1%), and the rent cost would be 7% (mortgage + 2%), while today it's more like 1% 0% 3%.
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  #62  
Old 10.01.2017, 17:40
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Re: Mortgage tips and risks

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What puzzles me, is that a bank uses a 5% rate to calculate Tragbarkeit, yet is willing to give out a loan at a fixed 1% for 15 years. If they expected a sharp rise, they would not do it, would they? They would be losing money.
Banks aren't losing money, they source your mortgage money even at negative rates currently, which the bond market is willing to pay. They pocket the profits twice: the negative rates plus your 1%.
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  #63  
Old 10.01.2017, 17:40
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Re: Mortgage tips and risks

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So you're saying the absolute rent does not depend on the interest rate? Many of my friends invest their Swiss savings in rental apartments in their country of origin, where apartments are much cheaper (like 1/4), and yields higher (like 6%). If what you're saying is true, then they kind of guarantee themselves constant absolute return, regardless of apartment value fluctuations, right? I myself did not choose this strategy of investing, but it seems it's not so bad.

I thought if mortgage cost goes up, the investors have to offset it by increasing the rent price. Taking the historical average as benchmark, I would imagine banks would charge 5% for mortgage loans, pay 4% for deposits (mortgage - 1%), and the rent cost would be 7% (mortgage + 2%), while today it's more like 1% 0% 3%.
Interest rates can easing exceed 15%, just look back 25 years. 5% in not a maximum.
Rents are limited by what people earn, if the rent doubles most people will leave & rental property will stay empty. In the Uk many people pay 50% of salary in rent, thats not something that can continue indefinitely & it's not permitted by law here.
Due to cheap money, Banks have become very lax on affordability so prices have risen too much, Basel III will fix this.
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  #64  
Old 10.01.2017, 18:27
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Re: Mortgage tips and risks

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So in Switzerland you can be forced to sell a place if it falls below a threshhold whereas in Spain you are forced to keep it until the price recovers.
I would posit it's the same in Spain due to the bank's right to clawback.

Spanish banks however don't pull the trigger because they don't need to write off anything as long as the mortgage is serviced, they prefer kicking the can down the road. Additionally if they forced a sale on a bigger scale it would depress house prices altogether, which in turn would endanger the remaining mortgages and probably get many more under water. So the current situation is in their own best interest, they don't particularly care about your friend.
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  #65  
Old 10.01.2017, 18:34
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Re: Mortgage tips and risks

tell her to buy something within her parent's means. maybe one of these: https://www.homegate.ch/kaufen/immob...Price-asc&ep=1
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  #66  
Old 10.01.2017, 19:39
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Re: Mortgage tips and risks

And while in the topic of real estate investments, how do you guys rate the strategy I mentioned, that my friends follow?

To recap, they earn in Switzerland, but transfer all their savings to their home country and buy flats for rent. By managing to save up 50'000 in a year, they can buy a flat each year. 6 years like this and they will have 6 small flats, which produce a return twice the average salary after tax. When they achieve this, they plan to retire. Can you rate this plan?
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  #67  
Old 10.01.2017, 20:15
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Re: Mortgage tips and risks

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And while in the topic of real estate investments, how do you guys rate the strategy I mentioned, that my friends follow?

To recap, they earn in Switzerland, but transfer all their savings to their home country and buy flats for rent. By managing to save up 50'000 in a year, they can buy a flat each year. 6 years like this and they will have 6 small flats, which produce a return twice the average salary after tax. When they achieve this, they plan to retire. Can you rate this plan?
It's very much down to taxation....... Income tax, CGT, potential capital restrictions. Holding property never allows a quick exit if the government changes & you need to run.
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  #68  
Old 10.01.2017, 20:33
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Re: Mortgage tips and risks

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The owners of build-able land are not building on it as it more than retains its' value without a building on it !

The land is their, in zones for building, however you cannot force people to build on land if they don't want too.
Who is suggesting anyone should be forced to build? I never said any such thing.
I was saying exactly that: the land is NOT being built on and it's not LEFT because it's certainly not on the market.
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  #69  
Old 10.01.2017, 21:54
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Re: Mortgage tips and risks

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And while in the topic of real estate investments, how do you guys rate the strategy I mentioned, that my friends follow?

To recap, they earn in Switzerland, but transfer all their savings to their home country and buy flats for rent. By managing to save up 50'000 in a year, they can buy a flat each year. 6 years like this and they will have 6 small flats, which produce a return twice the average salary after tax. When they achieve this, they plan to retire. Can you rate this plan?
Do they declare the (rental) income in Switzerland?
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Old 10.01.2017, 22:12
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Re: Mortgage tips and risks

Also, in Germany there's the formula: "Don't buy if it's more expensive than 25 years of rent (ex NK) for a comparative place".

In Germany as well as in Switzerland, the market has completely outpriced reality in a lot of locations.

What people should also consider: NKs go up with the age of the building.

In my village, there's currently an apartment for sale that is almost 40 years old. Very spacious and an absolutely priceless location, with no chance of there every being a building erected in front of it to take away the 16h of sun you get in the Summer (and as much of the Winter sun you can get).
But the building is old and the yearly NKs are probably double to what you pay for a new flat (in a worse location, of course).
And the apartment is in need for a total make-over because the previous owners (both deceased in 2015) never ever updated anything: Kitchen from 1979, bathrooms from 1979, carpets - the whole shebang. In a way, it's a bargain. But it could also be a money-drain.
And at its current price, it's too expensive for me

If you buy, make sure that you budget for a much higher amount of NKs from your pension or other sources of income. Even more so, if the building isn't brand new to begin with.
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Old 10.01.2017, 22:39
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Re: Mortgage tips and risks

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Interest rates can easing exceed 15%, just look back 25 years. 5% in not a maximum.
Not in Switzerland they can, the maximum allowed as voted and written in the constitution is 15%
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  #72  
Old 10.01.2017, 22:44
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Re: Mortgage tips and risks

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.
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  #73  
Old 10.01.2017, 22:44
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Re: Mortgage tips and risks

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And while in the topic of real estate investments, how do you guys rate the strategy I mentioned, that my friends follow?

To recap, they earn in Switzerland, but transfer all their savings to their home country and buy flats for rent. By managing to save up 50'000 in a year, they can buy a flat each year. 6 years like this and they will have 6 small flats, which produce a return twice the average salary after tax. When they achieve this, they plan to retire. Can you rate this plan?
The decision is essentially the same, just because you're doing with full cash as opposed to a mortgage it doesn't make the process any different.

Additionally you open yourself up for various other / increased risks, political, security, economic, FX, regulatory... Etc

So the strategy would need to be more than just buy a few apartments where it's cheap and live off the rent.

Going back to my basic formula, Yield >= historical average interest rates, still applies but with added risk you need added yield to compensate you for that.

A lot of people investing in propery in their "home" country end up paying over the odds, because when you come from a place where an apartment costs 1 million, an apartment costing 50k looks cheap, but the real question is, how does it compare to the properties locally?

There are always opportunities worth taking in any market, you just gotta know your strategy and what sort of risk you're comfortable taking, and what kind of actions you might take to mitigate or eliminate some the risk.
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  #74  
Old 10.01.2017, 22:46
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Re: Mortgage tips and risks

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tell her to buy something within her parent's means. maybe one of these: https://www.homegate.ch/kaufen/immob...Price-asc&ep=1
So on this list is one flat which is not a studio. It costs 580'000 and it is crying for renovation.

Whereas below you can find a much bigger, brand new flat, adhering 2000 watt society rules, that costs 880'000. In my opinion worth the difference.

http://www.tuchmacherhof.ch/?pid=wohnungen

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Do they declare the (rental) income in Switzerland?

Also, in Germany there's the formula: "Don't buy if it's more expensive than 25 years of rent (ex NK) for a comparative place".
No, they don't. They pay the tax in the country where the flats are. They don't fill a tax declaration here anyway.

So this formula takes 4% annual rental yield as a rule of thumb. In my opinion it largely depends on the situation and maturity of a given economy.

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
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  #75  
Old 10.01.2017, 22:52
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Re: Mortgage tips and risks

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No, they don't. They pay the tax in the country where the flats are. They don't fill a tax declaration here anyway.
AFAIK, 2017 starts the automatic information exchange between tax-authorities of Switzerland and a number of states.

It will be interesting to see once they have to explain the rental income to the Swiss Steueramt.
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  #76  
Old 10.01.2017, 22:55
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Re: Mortgage tips and risks

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AFAIK, 2017 starts the automatic information exchange between tax-authorities of Switzerland and a number of states.

It will be interesting to see once they have to explain the rental income to the Swiss Steueramt.
Steueramt wouldn't care if they only pay tax at source here.

Foreign rental income is not taxed here, it only affects your income tax rate in case of ordinary tax assessment. But when you're taxed at source, the tax rate is determined solely by your salary.
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  #77  
Old 10.01.2017, 22:56
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Not in Switzerland they can, the maximum allowed as voted and written in the constitution is 15%
They could just vote to always have the interest rate at 0% and soon we would see EUR costing 0.50 CHF

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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.
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
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  #78  
Old 10.01.2017, 22:57
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Re: Mortgage tips and risks

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Steueramt wouldn't care if they only pay tax at source here.
AFAIK, you would need to file if you have other sources of income. Quellensteuer or not. Likely, their income would exceed 120k.
A flat in a foreign country would count as such, IMO...
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Old 10.01.2017, 23:07
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Re: Mortgage tips and risks

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AFAIK, you would need to file if you have other sources of income. Quellensteuer or not. Likely, their income would exceed 120k.
A flat in a foreign country would count as such, IMO...
Hmm, indeed. In ZH it seems you may be asked to fill tax return if you earn 2500+ CHF somewhere in addition to your taxable-at-source salary here
https://www.steueramt.zh.ch/dam/fina...eranlagung.pdf

But rental income is taxable primarily in the country where the property is located. In Switzerland the taxable income from properties abroad is 0, although it affects the tax rate on what else you've got to pay tax on here.
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Old 10.01.2017, 23:25
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Re: Mortgage tips and risks

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Not in Switzerland they can, the maximum allowed as voted and written in the constitution is 15%
Which article is that?

There is a limit on what's called Konsumkredit (unsecured consumer credits?) used to be 14% or 15%, but that got lowered recently by Bundesrat's order to 10% (consumer credits) and 12% (credit on your credit card).

My parents mortgage deed (word? the physical document) to this day says maximum interest rate is 6%. The problem is that it's useless: Once it's unattractive enough the mortgage simply gets cancelled.

[QUOTE=Meadow;2721203]They could just vote to always have the interest rate at 0% and soon we would see EUR costing 0.50 CHF
Doesn't take a vote for interest rates to be at zero.

As for the strategy of buying a series of apartments abroad: Depends heavily on the country. In Ukraine (especially eastern) or Turkey I would say this is a very risky idea.
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