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Old 08.01.2018, 06:09
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Buying vs. Renting

My husband and I are seriously considering returning to CH. He is retired and I may work a bit part time. That said, we won't be having many thousands to fling around each month and are considering the ins/outs, pros/cons of buying an apartment vs. renting.

Naturally, we would not buy right away as we are not sure which area we would return to, but I recognize that we have a lot to learn about the implications of ownership vs. renter status in CH. Swiss born, my husband has spent over half of his life in Canada (where we just sold our home on Vancouver Island), and I have lived here all my life except three years in CH back in the 90s.

So, we know about these topics here in Canada, but not so much for Switzerland.

Thoughts and tips, things to think about - all welcome. Thanks very much.
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Old 08.01.2018, 07:12
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Re: Buying vs. Renting

There is a thread "buying vs renting" that might interest you.

If it was me, I would not buy an apartment. The unknowns of an owner community of that building that changes over time und the possible hidden cost of what they might decide with or without your consent would scare me off. I have some friends back in Switzerland, who are trying to sell now partly because of that and it's not easy, because they have been in there for > 20 years, so the apartment is not exactly new.

I'd buy a house, but if it's an apartment, I'd rent. YMMV though.

Good luck
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Old 08.01.2018, 07:32
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Re: Buying vs. Renting

Good morning, welcome to the forum.

if it was me, i WOULD buy an apartment - it means someone else worries about organizing heating oil, chimney sweep, (garden) etc - which you would if you had a house. In 10 years this might be a challenge.

Also, with current mortgage interest rates, the monthly cost is about 5-10% of renting. If you are buying freehold, you would probably be looking at putting down a lot of cash.

https://www.comparis.ch/immobilien/default
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Old 08.01.2018, 10:26
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Re: Buying vs. Renting

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Also, with current mortgage interest rates, the monthly cost is about 5-10% of renting.
It's not true. The mortgage interest alone maybe, but do you think someone's going to be "organizing heating oil, chimney sweep, (garden) etc" and paying your taxes for free for you? Landlord's profit margin is maybe about 30-40%, that's what you're looking at to be saving in exchange for the risks of ownership, such as collapsing house prices, all sorts of maintenance, skyrocketing interest rates etc
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Old 08.01.2018, 14:36
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Re: Buying vs. Renting

You'll probably have a hard time taking out a mortgage as you'd have only little regular income and zero local financial history.
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Old 08.01.2018, 15:47
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Re: Buying vs. Renting

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You'll probably have a hard time taking out a mortgage as you'd have only little regular income and zero local financial history.
Yes, quite true about the mortgage. A question along that line: I have heard that taxes are much lower if one is still paying off a mortgage vs having paid in full/outright for a property. If we were able to pay the whole amount for an apartment, would be still, in your opinion, be able to pay most in cash and then take a very small mortgage so as to not own outright? We have, as you noted, very little financial history in CH as we closed bank accounts etc. when we left in '93.
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Old 08.01.2018, 15:56
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Re: Buying vs. Renting

The only tax advantage of a mortgage is that that you can write interest off your taxes, which is equivalent to having having your mortgage rate discounted by your marginal income tax rate. As you won't have much income, the tax advantage will be likewise minimal. Either way, mortgage is always a positive cost and will not save your any money. That is unless you can invest the freed up money somewhere else at a better rate.
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Old 08.01.2018, 16:07
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Re: Buying vs. Renting

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Good morning, welcome to the forum.

if it was me, i WOULD buy an apartment - it means someone else worries about organizing heating oil, chimney sweep, (garden) etc - which you would if you had a house. In 10 years this might be a challenge.

Also, with current mortgage interest rates, the monthly cost is about 5-10% of renting. If you are buying freehold, you would probably be looking at putting down a lot of cash.

https://www.comparis.ch/immobilien/default
that is simply ridiculous. Can you provide some numbers?

including: mortgage, extra taxes on eigenmietwert, amortisation, utility costs, renewal fund, bld. insurance?
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Old 08.01.2018, 16:25
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Re: Buying vs. Renting

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that is simply ridiculous. Can you provide some numbers?
yup, i bought a place for 120'000. interest at 1% would be 1'200 per year or 100 per month.

renting a place i would have to pay 1'000 per month.

so 100/1000 = 10%

now the place was actually a car parking spot for 60k and the other 60k was a campervan, but the principle is the same, right?
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Old 08.01.2018, 16:28
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Re: Buying vs. Renting

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yup, i bought a place for 120'000. interest at 1% would be 1'200 per year or 100 per month.

renting a place i would have to pay 1'000 per month.

so 100/1000 = 10%

now the place was actually a car parking spot for 60k and the other 60k was a campervan, but the principle is the same, right?
And how much did you have to put as down payment? How many months of rent does that down payment equal? I think that's where EPMike was going...
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Old 08.01.2018, 16:39
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Re: Buying vs. Renting

I brought the minimum in cash (20%), my mortgage (interest only) is less than half of what I used to pay in rent for an apartment that has one additional room, one additional bathroom and an additional 45sqm overall.

However, the interest rates are only part of the cost and overall, I pay about the same now as I paid in rent for the smaller apartment before. Difference being that some money I pay now is "mine", so to speak.

I save nothing in taxes as the low interest rate just about compensates that idiotic "Eigenmietwert".

Regardless, I do think it pays off fairly quickly to buy if you can bring the cash, but would always caution against very long mortgages unless you really plan here on staying forever or at least a very long time. The market here is not superdynamic and many people can't afford to buy, so depending on the property, it may not be so easy to get rid of it again. My former boss had something like a mansion somewhere and was unable to sell it for 3 years - it was simply ridiculously expensive and there were few people generally able and interested in buying such a property.

But for a run-of-the-mill apartment, for example, in an urban or semi-urban area - can't really see that as a significant risk, again if you bring the cash and plan to stay for a few years at least. And of course could get a mortgage at all, cause it's a fair point that with limited financial history, it might be difficult.
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Old 08.01.2018, 16:40
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Re: Buying vs. Renting

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The only tax advantage of a mortgage is that that you can write interest off your taxes, which is equivalent to having having your mortgage rate discounted by your marginal income tax rate. As you won't have much income, the tax advantage will be likewise minimal. Either way, mortgage is always a positive cost and will not save your any money. That is unless you can invest the freed up money somewhere else at a better rate.
Not true, the mortgage can also be put against taxes which is good since the value of any purchased property is also part of your tax return. OP, note that this is a theoretical value worked out by the canton from the information you provide on the forms they send you. There is also a theoretical rent which has to be put against your tax as well which the mortgage interest helps to offset.

Obviously it depends on what you buy. We purchased a house for 320,000. The cantonal theoretical value is 191,000 and we have a mortgage of 250,000 so in fact we have a negative value for the wealth part of our tax return meaing we pay no wealth tax - although that is very low here in Switzerland anyway. Our theoretical rent is just over 10,000.
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Old 08.01.2018, 16:44
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Re: Buying vs. Renting

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yup, i bought a place for 120'000. interest at 1% would be 1'200 per year or 100 per month.

renting a place i would have to pay 1'000 per month.

so 100/1000 = 10%

now the place was actually a car parking spot for 60k and the other 60k was a campervan, but the principle is the same, right?
how is that the same?

What are your utility costs of living in the camper? And I can hardly believe you can buy a place fro 120k that rents for 1k.
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Old 08.01.2018, 16:49
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Re: Buying vs. Renting

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I brought the minimum in cash (20%), my mortgage (interest only) is less than half of what I used to pay in rent for an apartment that has one additional room, one additional bathroom and an additional 45sqm overall.

However, the interest rates are only part of the cost and overall, I pay about the same now as I paid in rent for the smaller apartment before. Difference being that some money I pay now is "mine", so to speak.

I save nothing in taxes as the low interest rate just about compensates that idiotic "Eigenmietwert".

Regardless, I do think it pays off fairly quickly to buy if you can bring the cash, but would always caution against very long mortgages unless you really plan here on staying forever or at least a very long time. The market here is not superdynamic and many people can't afford to buy, so depending on the property, it may not be so easy to get rid of it again. My former boss had something like a mansion somewhere and was unable to sell it for 3 years - it was simply ridiculously expensive and there were few people generally able and interested in buying such a property.

But for a run-of-the-mill apartment, for example, in an urban or semi-urban area - can't really see that as a significant risk, again if you bring the cash and plan to stay for a few years at least. And of course could get a mortgage at all, cause it's a fair point that with limited financial history, it might be difficult.
Wow, your interest rate must be extremely high OR you must have massively overpaid for you place for the mortgage ALONE to compensate the eigenmietwert.

Maybe big renovations can offset it, but mortgage alone???
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Old 08.01.2018, 17:43
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Re: Buying vs. Renting

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Wow, your interest rate must be extremely high OR you must have massively overpaid for you place for the mortgage ALONE to compensate the eigenmietwert.

Maybe big renovations can offset it, but mortgage alone???
Interest rates don't compensate the Eigenmietwert, just the effect (or lack thereof) there is on taxes overall (sorry if that wasn't clear).
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Old 08.01.2018, 18:02
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Interest rates don't compensate the Eigenmietwert, just the effect (or lack thereof) there is on taxes overall (sorry if that wasn't clear).
aren't these the same?

Tax = Taxable income + Eigenmietwert - Interest rates.
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Old 08.01.2018, 18:24
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Not true, the mortgage can also be put against taxes which is good since the value of any purchased property is also part of your tax return.
Whether you have 1M CHF locked up in a mortgage-free house or on a friggin' Sparkonto, the total of your taxable wealth doesn't change. It's like putting money from one pocket to another, the total doesn't change

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There is also a theoretical rent which has to be put against your tax as well which the mortgage interest helps to offset.
It has nothing to do with the mortgage, you pay it all the same whether you have the mortgage or not. It just comes with the ownership

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Obviously it depends on what you buy. We purchased a house for 320,000. The cantonal theoretical value is 191,000 and we have a mortgage of 250,000 so in fact we have a negative value for the wealth part of our tax return meaing we pay no wealth tax
Negative wealth was caused not by the mortgage, but by the sole act of you buying the house because for tax purposes they value the house a lot less than the money you used to have that you paid for it. If you take $$$ from your Sparkonto and pay off your mortgage fully now, the negative wealth would remain - as I said, total wealth doesn't change by putting money from one pocket(account) into another...
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Old 08.01.2018, 18:26
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Re: Buying vs. Renting

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aren't these the same?

Tax = Taxable income + Eigenmietwert - Interest rates.
Yes but the point is that Eigenmietwert > interest rates, hence next to no or no tax savings.
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Old 09.01.2018, 09:50
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Re: Buying vs. Renting

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Yes, quite true about the mortgage. A question along that line: I have heard that taxes are much lower if one is still paying off a mortgage vs having paid in full/outright for a property. If we were able to pay the whole amount for an apartment, would be still, in your opinion, be able to pay most in cash and then take a very small mortgage so as to not own outright? We have, as you noted, very little financial history in CH as we closed bank accounts etc. when we left in '93.
Paying back a mortgage in and of itself, the payment, has zero effect on tax. But it reduces the mortgage thus interest due, which is tax deductable, thus your tax burden from that side increases (slightly considering the low interest rates and your presumably low marginal tax rate). Oth other hand your tax burden also decreases, assuming your money would have earned income (e.g. interest on bonds or dividends from stock) had you not made that payment.

The point about a mortgage is, you can invest your remaining money. If it's done in a tax-efficient manner the tax burden probably shrinks, capital gains (usually tax free) come to mind, e.g. from stocks. AFAIK annuities and comparable payments don't count as income from investment. But as a general rule, once your capital gains from investments is more than 50% of your annual income your gains may be treated as income, in which case taxes and social contributions will probably cost 30-50% of those capital gains.

In your situation the 50%-threshold may be rather low. I don't know whether retirees are treated differently, but if you're close to that threshold you probably want to get professional advice, professionals who also know the current practice.
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Old 09.01.2018, 10:13
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Yes but the point is that Eigenmietwert > interest rates, hence next to no or no tax savings.
Eigenmietwert > interest rates means you pay MORE taxes, not less!
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