English Forum Switzerland

English Forum Switzerland (https://www.englishforum.ch/forum.php)
-   Finance/banking/taxation (https://www.englishforum.ch/finance-banking-taxation/)
-   -   investing in real estate vs buying property (https://www.englishforum.ch/finance-banking-taxation/291296-investing-real-estate-vs-buying-property.html)

user137 12.04.2019 15:13

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. :cool:

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? :eek:

Enlighten me please.

fatmanfilms 12.04.2019 15:41

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3060648)
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. :cool:

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? :eek:

Enlighten me please.

Repairs & maintenance that over time will be 1% or 10,000 a year

user137 12.04.2019 15:46

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3060666)
Repairs & maintenance that over time will be 1% or 10,000 a year

making the "owner" position even worse then... on the other hand, repairs are tax deductible, so I guess that zeroes it out somewhat?

to be fair the building I live in was built in 2005 in Minergie standards, I don't think there was anything done to it in the last 14 years and it doesn't seem like anything else is coming in the next 5-10.

fatmanfilms 12.04.2019 15:50

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3060672)
making the "owner" position even worse then... on the other hand, repairs are tax deductible, so I guess that zeroes it out somewhat?

to be fair the building I live in was built in 2005 in Minergie standards, I don't think there was anything done to it in the last 14 years and it doesn't seem like anything else is coming in the next 5-10.

You also need to look at interest rates, I remember when Swiss Post were paying 2.5% interest, Mortgages were much higher, Banks stress test at 5% + 1% maintenance.

user137 12.04.2019 16:13

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3060676)
You also need to look at interest rates, I remember when Swiss Post were paying 2.5% interest, Mortgages were much higher, Banks stress test at 5% + 1% maintenance.

this one is indifferent as one would be invested in real estate either way (higher rates mean higher income on the investment end, and a looming renewal after the 1st period + dropping real estate prices in the long run).

Banks test at 5% gross AFAIK.

Karl 12.04.2019 16:18

Re: investing in real estate vs buying property
 
6% interest on real estate investment that goes on "indefinitely" is by no means a sure thing. It can easily go into the negative zone. Between 1989 and 2009 house prices dropped and it took 20 years to recover. Since 2009 it's been positive, but looking back I would by now means assume real estate as an investment will bring in 6%.

user137 12.04.2019 16:32

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by Karl (Post 3060707)
6% interest on real estate investment that goes on "indefinitely" is by no means a sure thing. It can easily go into the negative zone. Between 1989 and 2009 house prices dropped and it took 20 years to recover. Since 2009 it's been positive, but looking back I would by now means assume real estate as an investment will bring in 6%.

look at crowdhouse.ch
but there is life outside of CH as well.
I'd say let's assume a 6% return for the sake of the comparison.

user137 17.04.2019 22:31

Re: investing in real estate vs buying property
 
CrowdHouse just posted their 2018 report. 5.9% return across several dozen properties.

fatmanfilms 17.04.2019 22:39

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3062491)
CrowdHouse just posted their 2018 report. 5.9% return across several dozen properties.

You need to take property company accounts with a pinch of salt as the value of the properties is just an opinion of value of an illiquid asset. Plenty of companies restate profits...... Swiss pension funds are not making 5.9% compound on their property assets.

user137 17.04.2019 23:11

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3062494)
You need to take property company accounts with a pinch of salt as the value of the properties is just an opinion of value of an illiquid asset. Plenty of companies restate profits...... Swiss pension funds are not making 5.9% compound on their property assets.

This is dividend paid out, not a magic number calculated.

Jim2007 17.04.2019 23:12

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3062491)
CrowdHouse just posted their 2018 report. 5.9% return across several dozen properties.

Do you understand why it is so unusually high? 3.5% would be a more realistic figure.

fatmanfilms 17.04.2019 23:53

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by Jim2007 (Post 3062500)
Do you understand why it is so unusually high? 3.5% would be a more realistic figure.

Looks like the properties are mortgaged @60% so it's geared 150% of your investment :msnnerd: Fixed rate mortgages of 5 years, what could possibly go wrong :D 20% fall in property price & you lose 50% of your investment.

Urs Max 18.04.2019 09:58

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3062491)
CrowdHouse just posted their 2018 report. 5.9% return across several dozen properties.

Stock in PSP, to pick one well-established 800-pound gorilla listed on the stock exchange, comes with 3.5% divi return. Their equity is a tad more than 50% of assets, meaning they use a tad less than 2x leverage. CrowdHouse uses 58-65% credit; 66.7% credit (I prefer simple calculations) means 3x leverage (while I'm at it: the typical private homeowner brings 20% equity thus uses 5x leverage). With an assumed 4.5% gross return (that's probably a bit too high) and 2% costs and charges (0.7% mortgage interest, 0.8% maintenance costs and accruals, 0.5% admin costs and fees by CrowdHouse) that would result in 7.5% return on your equity.

Adjust that a bit because these are just balpark numbers and you get something like the 5.9% reported by CrowdHouse. The same calculation with 2x leverage, as applies to PSPN, results in 4% return, roughly what you get as dividend. If the PSPN dividend is classed as a return of capital it's income tax free, in which case the after-tax return is roughly the same for both investements even though PSPN uses significantly less leverage.

Long story short:
The increased return can be fully explained by the leverage used.

But you seem to ignore the risks:

What follows is speculative because the devil may lie in the detail and any potential investor should want to enquire about this by themselves (I didn't), but the bank will definitely try to structure things as follows simply because it improves their position quite significantly.

Once prices fall, whenever that will happen, the increased leverage will result in significantly higher percentage of equity lost for your ownership via CrowdHouse, that's obvious and certain.

The real hammer however lies in the fact that, contrary to buying stock of a real estate company like PSPN or buying shares of a real estate fund, with CrowdHouse you're probably liable for the full amount of the mortgage, not just your initial equity or a part of the mortgage that's proportionate to your ownership of the property.

This is caused by the fact that you're listed in the land registry as co-owner (as claimed by CrowdHouse, something that would need to be verified). While that's desirable, it also increases your risk. If you're "Solidarschuldner", and you probably are, each owner of a portioin of the property is by default liable for the full mortgage amount. If the mortgage provider comes after you alone, that's their judgment call, you may have to pay 100% of the outstanding credit whereupon you will have to chase the money from all other co-owners individually, in a long-winding process with unclear outcome - the only certainty is that this would cost lots of money in lawyer fees alone, money that may be unrecoverable.

So you may be forced to inject additional equity of an unknowable (albeit limited) amount if the market value of your property falls low enough, and that is likely to happen at the most inopportune time because a real estate crisis (so far) has always occured when the economy itself was having the flu or needed intensive care.

user137 17.06.2019 13:38

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3062502)

Looks like the properties are mortgaged @60% so it's geared 150% of your investment :msnnerd: Fixed rate mortgages of 5 years, what could possibly go wrong :D 20% fall in property price & you lose 50% of your investment.

you lose the investment only if you cash it out. nevertheless, dropping prices are always a risk in real estate. I didn't really get your point with the 20% loss couples to 50% loss on investment.

Do you think that 20% loss on RE prices is a reasonable scenario in Switzerland with the whole country ticking on mortgages?

my train of thought goes like this:
- CrowdHouse is interested to keep their properties (and user base) permanent as they are living off property management. Without customers there is nothing to manage so they'll go bust
- if rates hike significantly, which mean real estete prices will also drop significantly, that also means the rents will be raised to provide better leverage on the tenants
- in this case the co-owners can just keep their property bits and keep renting until "prices have stabilized" (right, if ever)
- you can have a drop-out after 5 years, but it's not mandatory of course.

Looking at the Swiss market, a steady increase in real estate prices over the last 50 years is given, even if the one huge bump they had took more than 20 years to fix. https://tradingeconomics.com/switzerland/housing-index

user137 17.06.2019 13:48

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by Urs Max (Post 3062572)
Long story short:
The increased return can be fully explained by the leverage used.

thanks a lot for the long story, appreciate the detailed explanation.

Quote:

But you seem to ignore the risks:

Once prices fall, whenever that will happen, the increased leverage will result in significantly higher percentage of equity lost for your ownership via CrowdHouse, that's obvious and certain.
if you stick to your own explanation, the question was whether to buy your own home or to buy-to-rent in smaller bits. With buying your own, you don't just expose yourself to a much bigger slice of financial commitment, but you also increase your leverage to 4:1 as you've rightly put. The risk exposure with C.H. is apparently much less in both capital and financial commitment.

The general risk of the real estate market is there in both ways. But it's there also if I rent, if I own, or if I own-to-rent, isn't it?

What would worry me, is if we assume(!) that the C.H. model is stable, and the market would not move significantly in any direction over time, is it more desirable to own your home or to chip in like this into a co-owning model and generate revenue (thus, taxable income) there.

Quote:

you're probably liable for the full amount of the mortgage, not just your initial equity or a part of the mortgage that's proportionate to your ownership of the property.

This is caused by the fact that you're listed in the land registry as co-owner (as claimed by CrowdHouse, something that would need to be verified). While that's desirable, it also increases your risk. If you're "Solidarschuldner", and you probably are, each owner of a portioin of the property is by default liable for the full mortgage amount. If the mortgage provider comes after you alone, that's their judgment call, you may have to pay 100% of the outstanding credit whereupon you will have to chase the money from all other co-owners individually, in a long-winding process with unclear outcome - the only certainty is that this would cost lots of money in lawyer fees alone, money that may be unrecoverable.
Thanks again for pointing this out. Question is, why would the bank go after a single owner with a claim that is clearly unrealistic by that owner? If I were a bank I'd go after the person who owns the biggest slice or just cite all involved parties to court and file a single case against multiple defendants.

Once again, this only happens if the 40% starting capital is eroded by massive price drops that I personally don't foresee happening in the next 5-10 years. Do you?

fatmanfilms 17.06.2019 13:51

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076299)
you lose the investment only if you cash it out. nevertheless, dropping prices are always a risk in real estate. I didn't really get your point with the 20% loss couples to 50% loss on investment.

Do you think that 20% loss on RE prices is a reasonable scenario in Switzerland with the whole country ticking on mortgages?

my train of thought goes like this:
- CrowdHouse is interested to keep their properties (and user base) permanent as they are living off property management. Without customers there is nothing to manage so they'll go bust
- if rates hike significantly, which mean real estete prices will also drop significantly, that also means the rents will be raised to provide better leverage on the tenants
- in this case the co-owners can just keep their property bits and keep renting until "prices have stabilized" (right, if ever)
- you can have a drop-out after 5 years, but it's not mandatory of course.

Looking at the Swiss market, a steady increase in real estate prices over the last 50 years is given, even if the one huge bump they had took more than 20 years to fix. https://tradingeconomics.com/switzerland/housing-index

If Prices fall the Bank will make a cash call ir will not refinance at the 5 year point, property will be sold under the hammer.

Being salaries do not rise 6% a year, probably nearer 0.7% on average then I would expect rents to rise at a lower amount. The base mortgage referred to in my lease was 3.75% it will be a long time before the landlord could raise rents due to higher rates.

You are forgetting substantial falls in real estate in 1989, it took 20 years for prices to reach the 1989 levels again, so it's really not a given that property prices will rise, especially if interest rates return to normal rates. The interest rates since 2009 are not 'normal' even through you believe they are.

Guest 17.06.2019 13:56

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076299)
you lose the investment only if you cash it out. nevertheless, dropping prices are always a risk in real estate. I didn't really get your point with the 20% loss couples to 50% loss on investment.

Lets say:

House worth 1.000.000,-
mortgage 600.000,-
investment 400.000,-

House loses 20% in value, which gives

House worth 800.000,-
mortgage 600.000,-
investment 400.000,-

Net result: 50% loss on investment.

This is besides interest, rent, maintenance, taxes etc...

user137 17.06.2019 14:01

Re: investing in real estate vs buying property
 
1 Attachment(s)
Quote:

Originally Posted by fatmanfilms (Post 3076305)
If Prices fall the Bank will make a cash call ir will not refinance at the 5 year point, property will be sold under the hammer.

Being salaries do not rise 6% a year, probably nearer 0.7% on average then I would expect rents to rise at a lower amount. The base mortgage referred to in my lease was 3.75% it will be a long time before the landlord could raise rents due to higher rates.

You are forgetting substantial falls in real estate in 1989, it took 20 years for prices to reach the 1989 levels again, so it's really not a given that property prices will rise, especially if interest rates return to normal rates. The interest rates since 2009 are not 'normal' even through you believe they are.

if your reference index is 3.75% you are overpaying your rent for quite some years.

I'm attaching the 50-yr chart of the housing market. We are on the higher end of the scale, but it doesn't seem to compare to '89 levels to me (plus there is no cold war, the Soviet Union is not going to just rupture, etc...).

But again, the question was not if prices could or could not fall, because they probably will plateau out or even decrease. The question is rent vs own vs co-own.

fatmanfilms 17.06.2019 14:09

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076309)
if your reference index is 3.75% you are overpaying your rent for quite some years.

I'm attaching the 50-yr chart of the housing market. We are on the higher end of the scale, but it doesn't seem to compare to '89 levels to me (plus there is no cold war, the Soviet Union is not going to just rupture, etc...).

But again, the question was not if prices could or could not fall, because they probably will plateau out or even decrease. The question is rent vs own vs co-own.

Probably not, which is why I never asked for a recalculation as my rent would likely increase by 80% with a lower reference index.

Your graph show under 1% compound since 1989, you need to rethink

Guest 17.06.2019 14:11

Re: investing in real estate vs buying property
 
Quote:

Lets say:

House worth 1.000.000,-
mortgage 600.000,-
investment 400.000,-

House loses 20% in value, which gives

House worth 800.000,-
mortgage 600.000,-
investment 400.000,-

Net result: 50% loss on investment.

This is besides interest, rent, maintenance, taxes etc...

Has property actualy fallen by 20% in Switzerland ever ?


It may drop a bit, maybe 10% as happened back in the mid 90's but it climbs back up again.


The main problem with property is it is not really a very liquid asset and you maybe forced to sell at a time that is not good for you....

fatmanfilms 17.06.2019 14:15

Re: investing in real estate vs buying property
 
Quote:

Has property actualy fallen by 20% in Switzerland ever ?
.
Yes from 1989 over the next 10 years, see the graph the OP has posted.

user137 17.06.2019 14:22

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3076314)
Yes from 1989 over the next 10 years, see the graph the OP has posted.

in which case you just need to move against the market and buy more properties over time... problem solved. :msnnerd:
(unless you run out of money first and still need to cash out... then one's initial strategy was not appropriate)

Guest 17.06.2019 14:40

Re: investing in real estate vs buying property
 
Quote:

Has property actualy fallen by 20% in Switzerland ever ?


It may drop a bit, maybe 10% as happened back in the mid 90's but it climbs back up again.


The main problem with property is it is not really a very liquid asset and you maybe forced to sell at a time that is not good for you....
I only answered a question, and the 20% was not my idea ;)

fatmanfilms 17.06.2019 14:41

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076319)
in which case you just need to move against the market and buy more properties over time... problem solved. :msnnerd:
(unless you run out of money first and still need to cash out... then one's initial strategy was not appropriate)

As you will have cash calls on your existing loans thats something you will be unlikely to do, normally it's easier in a rising market as you can increase existing mortgages & can fund new purchases out of thin air rather than add fresh cash..

user137 17.06.2019 15:42

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3076323)
As you will have cash calls on your existing loans thats something you will be unlikely to do, normally it's easier in a rising market as you can increase existing mortgages & can fund new purchases out of thin air rather than add fresh cash..

You seem to ignore the fact (or just like to troll around) that banks do not sell your properties any time they feel like. First because they can't, second because they are rather interested in keeping you on the line forever, even with a higher rate mortgage, which actually is happening in Switzerland to pretty much everything.

Those who miscalculate their financial power to jump into real estates will eventually get burnt/foreclosed, or you can finance your losses if you can/want. Same as with any miscalculated investment.

p42 17.06.2019 15:42

Re: investing in real estate vs buying property
 
Isn't real estate property? :msnsarcastic:

I have been burnt by real estate schemes with guaranteed yield funded by top high street banks. Basically you have no control. Switzerland is a fantastic place to buy property. My advice it to buy the largest stand alone pile of poo, 1920s built or earlier, that the bank will lend on, within a 30 to 90 minute commute of work.

It might be a tiny derelict house somewhere for 300K. Or a huge pile. Just make sure it is not too expensive for what it is.

Move in, live, rent out the spare rooms to anyone with a permit. Refugees, Credit Swiss and UBS employees are your friends. Repair everything to project minimum standard. Compared to the UK, France and Germany where I have owned, the older Swiss stuff is awesome quality. Huge stone walls made of granite, hardwood timbers where normal people use softwood. Hand forged door hinges, hand made nails. Beats typical 70s Wickes stuff for longevity. Go to comparis, reverse search on price, enjoy. Urs Max is completely right on this. Believe me.

user137 17.06.2019 16:40

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by p42 (Post 3076338)
Isn't real estate property? :msnsarcastic:

oops. :)

Quote:

My advice it to buy the largest stand alone pile of poo, 1920s built or earlier, that the bank will lend on, within a 30 to 90 minute commute of work.
and then let it get renovated by the Swiss for Swiss prices... right :)
on the other hand: 90 minutes commute to work... u crazy? We are not SFO, thanks God...

Quote:

Move in, live, rent out the spare rooms to anyone with a permit. Refugees, Credit Swiss and UBS employees are your friends. Repair everything to project minimum standard.
come to think of it, I want to do nothing of the sort, actually.

Quote:

Compared to the UK, France and Germany where I have owned, the older Swiss stuff is awesome quality. Huge stone walls made of granite, hardwood timbers where normal people use softwood. Hand forged door hinges, hand made nails.
the attached prices are also ridiculous, you can easily pay 100k+ for a kitchen+bathroom makeover, which might actually be the price for an actual flat somewhere in Western-EU. But even if you do invest in your own property, you still are living in the middle of the nothing (on the price tags of the properties I could currently afford), or in areas with subpar community in terms of EU standards. Not very keen on either of those.

p42 17.06.2019 17:37

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076357)
oops. :)


and then let it get renovated by the Swiss for Swiss prices... right :)
on the other hand: 90 minutes commute to work... u crazy? We are not SFO, thanks God...


come to think of it, I want to do nothing of the sort, actually.



the attached prices are also ridiculous, you can easily pay 100k+ for a kitchen+bathroom makeover, which might actually be the price for an actual flat somewhere in Western-EU. But even if you do invest in your own property, you still are living in the middle of the nothing (on the price tags of the properties I could currently afford), or in areas with subpar community in terms of EU standards. Not very keen on either of those.

Something has to give. If you have low buying power you need to be willing to work (DIY and/or letting) to make up, or have high income and pay for the services offered.

I bought in 2012, prices have not moved that much since, and was 20 mins or less from major employers like CS, and rent from 1 flat covered the mortgage on the block of 3.

You can still buy a house in Switzerland for 100K. People might spend 100K on a car or smth but not usually on a kitchen renovation, that sounds be extreme to me.

user137 17.06.2019 22:15

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by p42 (Post 3076380)
and rent from 1 flat covered the mortgage on the block of 3.

so you're basically doing the same as Crowdhouse, only smaller? :-p

I was thinking about this, but not much to get in Kt ZH where I would actually live and can afford. Until then, I'm happy to rent in the middle of Oerlikon, where there's nothing for sale, but everything is 5 minutes walk or less... :o

fatmanfilms 18.06.2019 07:22

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3076336)
You seem to ignore the fact (or just like to troll around) that banks do not sell your properties any time they feel like. First because they can't, second because they are rather interested in keeping you on the line forever, even with a higher rate mortgage, which actually is happening in Switzerland to pretty much everything.

Those who miscalculate their financial power to jump into real estates will eventually get burnt/foreclosed, or you can finance your losses if you can/want. Same as with any miscalculated investment.

You are incorrect, Banks do foreclose especially in a falling market to reduce their losses. They have to increase tier 1 capital depending of the 'status' & quality of their loan book or they could get closed down by the regulator. If a payment is late or at loan renegotiating a Bank can recall the loan, thats in 5 years time if you took out a 5 year fix.

user137 18.06.2019 10:00

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3076502)
You are incorrect, Banks do foreclose especially in a falling market to reduce their losses. They have to increase tier 1 capital depending of the 'status' & quality of their loan book or they could get closed down by the regulator. If a payment is late or at loan renegotiating a Bank can recall the loan, thats in 5 years time if you took out a 5 year fix.

my experience is completely different. If a bank has a problem, there are others out there that don't. There's always a solution, even if it's not economical to take. But we're straying far off topic, so I'll just leave it like that.

gipfelisturmer 18.06.2019 10:59

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by user137 (Post 3060725)
look at crowdhouse.ch

Have a read and see why such an investment is a bad choice.
https://lebijou.com/insights/crowdho...-alternatives/

p42 18.06.2019 12:39

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3076502)
You are incorrect, Banks do foreclose especially in a falling market to reduce their losses. They have to increase tier 1 capital depending of the 'status' & quality of their loan book or they could get closed down by the regulator. If a payment is late or at loan renegotiating a Bank can recall the loan, thats in 5 years time if you took out a 5 year fix.

This is true. Also if a bank sees that you have taken a lifestyle change, got divorced, they can recall the loan at the end of the period. Even if rates are lower, and it is more affordable in real terms, if you don't meet their income tests, etc. You need to keep looking good on paper for them to stay your lender.

It took me a couple of years to find something "good" in ZH. I have seen several potentially good properties in ZH since, of those I know that 2 of them actually turned out to be really good deals at the time. Both just under 20 mins from Zurich HB and very near stations. One of those got over redone at great expense so negating the benefit of the initial shrewd purchase. The other is ongoing, still being over done in my view, but the purchaser is doing a lot of the work themselves, labour of love style. Hopefully that doesn't end in divorce/unfinished project.

Phil_MCR 18.06.2019 13:25

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by p42 (Post 3076575)
This is true. Also if a bank sees that you have taken a lifestyle change, got divorced, they can recall the loan at the end of the period. Even if rates are lower, and it is more affordable in real terms, if you don't meet their income tests, etc. You need to keep looking good on paper for them to stay your lender.

It took me a couple of years to find something "good" in ZH. I have seen several potentially good properties in ZH since, of those I know that 2 of them actually turned out to be really good deals at the time. One of those got over redone at great expense so negating the benefit of the initial shrewd purchase. The other is ongoing, still being over done in my view, but the purchaser is doing a lot of the work themselves, labour of love style. Hopefully that doesn't end in divorce/unfinished project.

how good is good (in terms of gross rental yield)? i only found 3 good deals in my 10 years of looking:

1. I bought
2. I was out-bid
3. Was out of my price range

Still looking and for the specific area I want, the prices are just unreal.

EDIT:

actually, there was #4 which was amazing, but was off the market again within 2 minutes as it was such a good deal. I was too slow.

Meadow 18.06.2019 13:48

Re: investing in real estate vs buying property
 
6% annual rental yield in Switzerland? According to Numbeo statistics, the average is 3.5%. That means something like 3% for expensive property and 4% for cheap property.

6% is realistic in countries like Poland, but if you take exchange rate / inflation into account, the real return is much lower.

Btw, I guess for your comparison to make sense, both options should be similarly leveraged. In your Option B, you invest 250k and take a loan for 750k. That's a 3:1 debt-to-equity ratio. I wonder what is the leverage in Option A to get these 6%.

Also, not sure if it makes sense to count amortisation as cost? You pay back the loan, so the loan get's smaller. I think maybe for the sake of simplicity, you should consider a scenario where your LTV is low enough that you don't have to amortise (65%). That would put your debt-to-equity closer to 2:1.

Guest 18.06.2019 16:48

Re: investing in real estate vs buying property
 
I'll give you some actual figures from one of my rental properties.


Purchased 2013 for Chf 265k + $13k notary fees + Chf 15k renovation costs, total Chf 300k


Rental income Chf 1'400.--/month = Chf 16'800.--

PPE Charges : Chf 5'720.--/annual including renovation account

Hypoteque Chf 175k @ 0.7% = Chf 1'320.--/ annual



Income before tax Chf 9'760.--/annual on investment of Chf 125k


ROI before tax = 7.808%


Some are a bit more, some a bit less, nothing under 5.5% or it goes or gets changed.

Phil_MCR 18.06.2019 16:57

Re: investing in real estate vs buying property
 
Quote:

I'll give you some actual figures from one of my rental properties.


Purchased 2013 for Chf 265k + $13k notary fees + Chf 15k renovation costs, total Chf 300k


Rental income Chf 1'400.--/month = Chf 16'800.--

PPE Charges : Chf 5'720.--/annual including renovation account

Hypoteque Chf 175k @ 0.7% = Chf 1'320.--/ annual



Income before tax Chf 9'760.--/annual on investment of Chf 125k


ROI before tax = 7.808%


Some are a bit more, some a bit less, nothing under 5.5% or it goes or gets changed.
this is why i don't like flats: PPE eating up 1/3 of gross rental income! :eek:

bigblue2 18.06.2019 17:16

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by fatmanfilms (Post 3076502)
You are incorrect, Banks do foreclose especially in a falling market to reduce their losses. They have to increase tier 1 capital depending of the 'status' & quality of their loan book or they could get closed down by the regulator. If a payment is late or at loan renegotiating a Bank can recall the loan, thats in 5 years time if you took out a 5 year fix.

what he said I know a guy where the bank called in their loan just a couple of months ago, never missed a payment, personal circumstances haven't changed etc etc he tried to fight them and just lost.

Guest 18.06.2019 18:10

Re: investing in real estate vs buying property
 
Quote:

Originally Posted by Phil_MCR (Post 3076646)
this is why i don't like flats: PPE eating up 1/3 of gross rental income! :eek:


Not as such because i think this PPE in question my apartment is 44/1000, budget is Chf 130k of which Chf 20k is for an extraordinary event an Chf 60k is for the renovation fund.


As such the real amount is Chf 70k for the PPE which is considerably less, arguably Chf 50k as Chf 20k is not a repeat item


But i do see where you coming from, but the return of 7.8% on MY investment is not so bad really, better than Woodford, that's for sure !:D:D

Meadow 18.06.2019 18:58

Re: investing in real estate vs buying property
 
Quote:

Purchased 2013 for Chf 265k + $13k notary fees + Chf 15k renovation costs, total Chf 300k

Rental income Chf 1'400.--/month = Chf 16'800.--
These are some sweet numbers, but where do I find a 300k flat that will rent for 1400? Is "PP&E" Nebenkosten? So I assume it's more like 1000 Kaltmiete + 400 Nebenkosten?


All times are GMT +2. The time now is 15:37.

Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2021, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0