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Old 07.05.2011, 11:45
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renting vs buying - what would you do?

Firstly, I have looked at the other threads that deal with renting vs. buying. I have a specific situation for which I am looking for some insight...

So, here it is - I have seen some properties that are listed both under renting and selling. For example, a property costs 780k to buy, or 2800 to rent. The house is new (built within the last couple of years) so I would assume repair/remodeling costs are not a big factor. According to Hypothekenrechner, a mortgage for 620k could be had for ~2800 ChF including Unterhalts- and Nebenkosten.

If you knew you were coming to Switzerland for at least 5 years (as much as one can know these things) and possibly forever and you had the cash on hand to pay the 20% down payment on a mortgage, what would you do? I can't see the risks of owning (paying for repairs, taxes, etc.) being worse off than the rewards of ownership - you do own part of the house when and if you do sell it where with rent you do not. I understand that 20% down payment is now locked into the house and isn't sitting in some mutual fund somewhere earning some interest (hopefully!), but that isn't guaranteed either.

Given these specifics, and not needing the flexibility of a move at quick notice, what would you do?

The American in me makes me want to own my own place...
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Old 07.05.2011, 11:50
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Re: renting vs buying - what would you do?

A no brainer in my experience - Buy!
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Old 07.05.2011, 12:11
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Re: renting vs buying - what would you do?

Buying does make sense, as you probably will pay almost double the cost of mortgage for renting. Problem is, many expats arriving in CH think can buy because they have a high salary- but then realise they cannot raise the 20% 'cash' and that by Law they can only get an 80% mortgage.

Prices vary hugely in CH according to location- the further you get from the Geneva/Lausanne riviera and Zurich, the more value for money, space, character, etc, you will get. Where are you heading to?
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Old 07.05.2011, 13:37
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Re: renting vs buying - what would you do?

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Buying does make sense, as you probably will pay almost double the cost of mortgage for renting. Problem is, many expats arriving in CH think can buy because they have a high salary- but then realise they cannot raise the 20% 'cash' and that by Law they can only get an 80% mortgage.

Prices vary hugely in CH according to location- the further you get from the Geneva/Lausanne riviera and Zurich, the more value for money, space, character, etc, you will get. Where are you heading to?
We aren't sure yet that we are making the move, but my husband's job would be in Horgen, and I am looking within a 30-40 minute (drive) commute. Have seen some things in SZ and GL that fit the bill. Of course, haven't been there personally yet, and things could drastically change once I see the areas in person, but first things first, obsess incessantly about possibilities before the offer comes in
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Old 07.05.2011, 13:56
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Re: renting vs buying - what would you do?

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According to Hypothekenrechner, a mortgage for 620k could be had for ~2800 ChF including Unterhalts- and Nebenkosten.
That doesn't sound right. Unless you are looking at worst case scenario? (high interest rates?)
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Old 07.05.2011, 14:09
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Re: renting vs buying - what would you do?

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That doesn't sound right. Unless you are looking at worst case scenario? (high interest rates?)
It included (from what I understood) costs for Nebenkosten and other running costs:

Quote:
Beispielhaft eine monatliche Belastung aus einem kalkulatorischem Zinssatz von 4.1 %, inkl. Unterhaltskosten sowie den Nebenkosten in Höhe von 1% des Kaufpreises
Came out to 2'768 CHF for 780k and 160k down payment

But then it gives the following based on 2.3% Zinssatz:

Quote:
Kalkulierte monatliche Belastung mit Hypothekarzinsen in Höhe von :
1'188 CHF Sowie Unterhalts- und der Nebenkosten :
650 CHF Die kalkulierte monatliche Belastung beträgt :
1'838 CHF
So is the 1800 number the mortgage payment, and the rest are guesstimates at running costs?
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Old 07.05.2011, 14:40
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Re: renting vs buying - what would you do?

Don't forget, if the rent is 2800/mo, and you buy it, you have to pay income tax on that 2800/mo added to your salary!

Tom
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Old 07.05.2011, 14:55
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Re: renting vs buying - what would you do?

Weird system, isn't it- but then compared to UK you don't pay rates, so it all evens out, sort of.
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Old 07.05.2011, 15:03
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Re: renting vs buying - what would you do?

First, do not buy anything until you know the country, know the area you are buying in, know the neighborhood - and the neighbors.

Unlike other countries, the cost of selling your property is huge - so it is generally advised to only buy if you are here long term - and that means in the neighborhood of 10+ years, not necessarily 5.

Most cantons impose a penalty on the sale of a property if it has not been held a certain number of years, generally 5 but in some cantons much longer than that. For instance, SZ has a general capital gains on property tax, and then imposes penalties or rebates on the tax as follows, see point C:

http://www.sz.ch/documents/mb_grunds...erklaerung.pdf

Many people find that if they hold a property for only a few years their entire profit is taxed away - and given the other fees and taxes surrounding a sale, if you had to sell quickly you could be in for an unpleasant surprise.

(Americans take note: you will also have a foreign exchange transaction to deal with. I am now in the delightful position of having bought the house when USD/CHF was 1.4-ish, and am now selling at .85 - meaning that even if I sell my house for no profit or even a loss, I am still looking at a very painful US tax bill.)

So - bear in mind that a mistake can be costly. If you find that you cannot get permits to renovate, that your neighbors are making your life a misery - moving out is not so simple.

Also, bear in mind that historically housing has appreciated very slowly, something on the order of 1-2% per year - possibly not the best use of your cash. Right now we are in a bubble where prices are rising to astronomical heights, very uncharacteristic... but we have all see this before in the US and UK, haven't we? When will the bubble burst? Who knows... but do you want to buy at the height of the bubble?

Also bear in mind that if house prices crash, the bank may well require you to top up your deposit to cover their investment. This happened in the early 90s, and friends needed to come up with 6 figures within a very short time, or face losing the house.

And there is Eigenmeitwert - a theoretical rental value of your house is added to your income, on which you pay tax. This is done to make it 'fairer' , the idea is then that home owners do not have an advantage over renters.

That said, for us it has worked out to be a better financial decision to buy rather than rent, as we bought before the bubble, and so traded silly expat rent for a very low mortgage. By the way, putting 33%+ down will in many cases bring your rates down significantly as well.

The low mortgage, plus the low SZ taxes (even with Eigenmietwert) made buying a financial no-brainer at the time.

And of course there is the best - and for me only - reason to buy: no evil landlord breathing down my neck. I hate renting, hate feeling like I am living in someone else's space.

We rented for 5 years - and as soon as we got our C permits we left ZH for SZ (in those days non-EU had to live in the canton of employment) and bought. That gave me time to learn about the country, learn about various areas, learn about the property market - and make a relatively well informed decision.

So why am I selling now, at what is likely to be a significant financial loss? Because despite all my due diiligence, things have gone pair-shaped. Recently new neighbors (renters) who are determined to force me to get rid of my dogs have moved into the Quartier. Life ain't fun anymore. I will never, ever give up my pets - so we have to move.

Even when you own your property, be aware that in Switzerland your home is not your castle - even as a home owner your neighbors have as much influence over how you live as when you rent. Sometimes more, because there is no landlord to mediate.

Why not rent for a year or so first - learn about the country, decide if this is indeed for you - and then consider buying. And perhaps by that time the bubble may have burst, and property will be more in line with it's real value.

Last edited by meloncollie; 07.05.2011 at 15:50.
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Old 07.05.2011, 15:07
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Re: renting vs buying - what would you do?

Actually buying is more efficient from a taxation point of view:

You can deduct mortgage interest payments from your income (but not capital repayments). You do have to add a fictitious rental value to your income (Eigenmietwert) but this is generally fairly low.

Repairs and upkeep can be deducted from your income.

Your mortgage can also be deducted from your assets.

All this is one of the reasons why people generally never pay off mortgages in Switzerland and indeed one is not encouraged to do so.

If you put down 20% you will be expected to have a mortgage for about 66% of the house value on which you will only pay interest. You will have another mortgage for the remainder (i.e. from 66% to 80%) which you will be expected to amortize. Naturally YMMV from bank to bank.

Not having to deal with a landlord or an agency is another good reason. Had we not bought I would probably have ended up committing a heinous crime against our landlord (or more probably his wife, who substituted a broom for a car...).
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Old 07.05.2011, 15:11
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Re: renting vs buying - what would you do?

Excellent advice from Meloncollie and Snoopy (as usual) - and I'm so sorry new neighbours are making life so difficult for you and your dogs Meloncollie - I assume you've gone down all the mediation avenues before coming to the drastic decision to move.

Renting for a while to get a feel of the place makes sense anywhere, not just in Switzerland. Making such a huge investment without knowing the area first, and knowing that you'd be taxed heavily if you sell before 5 years (or more) requires caution.
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Old 07.05.2011, 15:40
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Re: renting vs buying - what would you do?

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Don't forget, if the rent is 2800/mo, and you buy it, you have to pay income tax on that 2800/mo added to your salary!

Tom
Not necessarily. The notional rent is often much less than the actual rent. ( Our is 1'800 a month, but to rent our house you'd be looking at twice that).

Interest payments on the mortgage are tax deductable, as is the cost of repairs and other work on the house/apartment.
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Old 07.05.2011, 15:50
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Re: renting vs buying - what would you do?

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Not necessarily. The notional rent is often much less than the actual rent. ( Our is 1'800 a month, but to rent our house you'd be looking at twice that).

Interest payments on the mortgage are tax deductable, as is the cost of repairs and other work on the house/apartment.
How is the notional rent calculated/discovered?
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Old 07.05.2011, 15:53
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Re: renting vs buying - what would you do?

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How is the notional rent calculated/discovered?
It's set by your local tax department.
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Old 07.05.2011, 16:03
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Re: renting vs buying - what would you do?

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How is the notional rent calculated/discovered?
A few years ago SZ reassessed every house in the canton for Eigenmietwert purposes.

A gentleman came round to the house with his checklists and formulae. He looked through all our documents, looked at our receipts for renovations, looked at amenities (kitchen and baths figured heavily here) measured all living and non-living space, rated the fixtures as luxury or normal, etc. In addition to the (market) price of the land, price of similar homes recently sold, he added things like view of the lake, design of the garden, hours of sunshine, accessibility, distance from public transportation, noise from the street, etc. to his assessment of the value property.

And then he consulted the phase of the moon and looked at the entrails of a slaughtered goat to devine some theoretical number.

Honestly, our Eigenmietwert bears, as far as I can see, no relation whatsoever with anything on the market in this neighborhood.
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Old 07.05.2011, 16:39
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Re: renting vs buying - what would you do?

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A few years ago SZ reassessed every house in the canton for Eigenmietwert purposes.

A gentleman came round to the house with his checklists and formulae. He looked through all our documents, looked at our receipts for renovations, looked at amenities (kitchen and baths figured heavily here) measured all living and non-living space, rated the fixtures as luxury or normal, etc. In addition to the (market) price of the land, price of similar homes recently sold, he added things like view of the lake, design of the garden, hours of sunshine, accessibility, distance from public transportation, noise from the street, etc. to his assessment of the value property.

And then he consulted the phase of the moon and looked at the entrails of a slaughtered goat to devine some theoretical number.

Honestly, our Eigenmietwert bears, as far as I can see, no relation whatsoever with anything on the market in this neighborhood.
sounds like a job for me. but rather than do all that work, I would just throw a dart at a sheet with numbers on it and come up with the result

That seems like way too much work but heck, keeps someone employed!

Thanks for all your insight, it is very helpful as the Swiss market is certainly quite different (we have owned a house before, but in the US where it is certainly easy to do!).

Of course living somewhere for a while to learn the lay of the land makes sense. I just have found that we end up staying put anyways as the move itself - especially now with 3 kids, is more hassle than anything else! Of course, if we can find a suitable place to rent (or if we like one of these that are listed for both rent and sale) then renting first would be the prudent thing to do. Although when I think back on my life and mistakes that have been made, you just sometimes have to live and make your own mistakes before learning from them (or listening to your mom's advice...)
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Old 07.05.2011, 16:51
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Re: renting vs buying - what would you do?

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Honestly, our Eigenmietwert bears, as far as I can see, no relation whatsoever with anything on the market in this neighborhood.
Meaning it's lower/in your favour still?
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Old 07.05.2011, 17:01
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Re: renting vs buying - what would you do?

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If you knew you were coming to Switzerland for at least 5 years (as much as one can know these things) and possibly forever and you had the cash on hand to pay the 20% down payment on a mortgage, what would you do?
For me, knowing what I know now, it's a definite no brainer. Don't buy until you have been here a few months. Spend 10K on serviced apartments or do a deal with a hotel on a monthly basis, student flat share if you want to be cheap. Buy a GA rail pass or lease a 2 yr old Mini or something with good residuals. See at least 100 to 200 places from the outside, find where shops & your favorite areas are. Look at tax implications of where you choose to live. Living in the right place can save a few grand a month on taxes for example.
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Old 07.05.2011, 17:32
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Re: renting vs buying - what would you do?

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For me, knowing what I know now, it's a definite no brainer. Don't buy until you have been here a few months. Spend 10K on serviced apartments or do a deal with a hotel on a monthly basis, student flat share if you want to be cheap.
If we end up coming, I will have to see what options there are for that. However, as we are a family with 3 young children, I suspect our options are much more limited. Or at least it becomes quite difficult.
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Old 07.05.2011, 18:02
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Re: renting vs buying - what would you do?

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It's set by your local tax department.
In Suisse Romande it is called 'estimation cadastrale'. Our house was re-assessed about 1 year after we bought. Same experience as Meloncollie- apart that we had prepared for his visit with a friend who 'knows what's what' and who had given us good advice. We were able to 'barter' and bring the sum down significantly from his initial asessment.
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