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Old 12.04.2019, 15:13
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investing in real estate vs buying property

So, this is a long-term dilemma of me that I'd like to vet with a larger audience.

Basically buying a 5.5 room garden house in Thalwil (or a similarly nice location and size) is out of budget, and I'm unwilling to rent something for 4k a month. Reasonable flats with good connections very quickly skyrocket the 3000 CHF/month mark. Heck, it's tough to be poor in Switzerland.

The short story: investing in real estate on 6% return and keep renting - vs - buying property at a worse location and enjoying its (financial) benefits.

For the sake of numbers, let's calculate with a flat worth of 1M and a downpayment of 250k, 1% mortgage (7500CHF a year).
Same flat in rental would be 2500CHF a month.

Option A)
- Assume that 6% income on real estate is possible "indefinitely".
- Running regular housing market risk, of course.
- 250k invested at 6% = 15k/yr income
- renting the flat above, 30k/yr

Disadvantages:
- One can't use the 2nd and 3rd pillar for capital
- The income on renting is taxable (~3k loss)

Advantages:
- Netting 18k costs per year, which is easily bearable. Even 12k higher is not too bad.
- flexible with moving to smaller or larger apartments or closer to work as needed
- keeping the capital flexibly available in a 5-year horizon

Option B)
- buying the flat above
- yearly costs 7500 CHF on interests, 7500CHF to amortize = 15k
- Running regular housing market risk, of course.
- 30k eigenmietwert, -7500CHF tax base deduction = 22.500CHF base increase (let's say 5k plus load)
- total of 20k costs per year

Advantages:
- one can cash out or pledge 2nd and 3rd pillar, so the actual capital to invest is "less". One can also pump this money back which is then tax-free again.

Disadvantage:
- your capital are locked in in a mortgage and an immovable property
- you are locked to your property, at least for a while (can't rent with a B permit)
- one has the 750k mortgage renewal looming over the head if not paid in full in 10 yrs, interest rates are likely to rise in the next 10 years
- with these numbers, it's very hard to find anything in the greater Zürich area, so you'll be locked into sub-par locations and will need a car to add to the costs.

Now I am either totally wrong with my calculations, or owning property is not such a good business, after all?

Enlighten me please.
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dilemma, investment advise, owning flat, real estate




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