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Old 27.01.2021, 19:56
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1% rule and buying a house in Switzerland

I'm buying a one family house 6.5room (186m2 living area) in Switzerland for around 2million chf in a cute village, 30min from Zürich. I have been reading alot about real-estate investing while preparing bank documents and came across the 1% rule which say you should ideally be able to generate 1% of the house total value a month in rental income which to me seems far of in my case. Eg. i will for sure not be able to collect 20.000chf on a 2million chf home. Maybe i could get 4-6000chf.

Is the Swiss market a terrible housing investment or why is this 1% rule so far of in my case.

Article about 1% rule:
https://learn.roofstock.com/blog/the...ironclad-is-it
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Old 27.01.2021, 19:58
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Re: 1% rule and buying a house in Switzerland

How do prices in Detroit relate to CH?

Tom
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Old 27.01.2021, 20:00
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Re: 1% rule and buying a house in Switzerland

It's part of a larger housing project and newly build so no renovation cost and similar unexpected expenses.
But actually many similar houses as 40years old are listed at the same price (not sure if the owner are looking for a jackpot or that's the real market value)
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Old 27.01.2021, 20:13
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Re: 1% rule and buying a house in Switzerland

I've not heard of people buying a house that costs 2 million for the sole purpose of renting it out. To live in, sure. But otherwise you also have your own living costs to consider.

You'd need 400k for the down payment, at least 200k of which would need to be cash. That could take a while to recoup in rent even at 6k a month without any additional landlord costs.

But I'm not in your league with 400k burning a hole in my pocket to throw at whatever suits my fancy.
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Old 27.01.2021, 20:14
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Re: 1% rule and buying a house in Switzerland

1. Of course the owner is looking for a jackpot, if they aren't they priced it too low as a starting price!

2. 12% rental return is a fantasy
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Old 27.01.2021, 21:08
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Re: 1% rule and buying a house in Switzerland

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I've not heard of people buying a house that costs 2 million for the sole purpose of renting it out. To live in, sure. But otherwise you also have your own living costs to consider.

You'd need 400k for the down payment, at least 200k of which would need to be cash. That could take a while to recoup in rent even at 6k a month without any additional landlord costs.

But I'm not in your league with 400k burning a hole in my pocket to throw at whatever suits my fancy.
I understood that it requires a 50% deposit if you're just going to rent it out.
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Old 27.01.2021, 22:08
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Re: 1% rule and buying a house in Switzerland

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12% rental return is a fantasy

Around a 10th of that is more reasonable I guess.
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Old 27.01.2021, 22:42
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Re: 1% rule and buying a house in Switzerland

From the FINMA website:
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FINMA recognises the adjusted self-regulation by the Swiss Bankers Association (SBA) in the area of mortgage lending for investment properties as a binding minimum standard. This self-regulation now requires borrowers to provide a minimum down payment of at least a quarter of the loan-to-value ratio, instead of the current ten per cent. The lower of cost of market principle continues to apply, whereby any difference between a higher acquisition price and lower loan-to-value ratio is to be financed entirely with the borrower’s own funds. In addition, the mortgage is now to be amortised to two-thirds of the loan-to-value ratio of the property within a maximum of 10 years (currently 15 years). The tightened rules only apply to new borrowers, but not to existing loans or to the existing standards relating to owner-occupied residential property. The rules will come into force on 1 January 2020.
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Old 28.01.2021, 08:45
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Re: 1% rule and buying a house in Switzerland

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From the FINMA website:
25% cash & quicker amortisation, I cant see Swiss house prices rising much longer. All things being equal people will only be able to afford a property costing 20% lower than they could last year or less than half the price if they used their pension fund for half of the deposit.
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Old 28.01.2021, 11:01
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Re: 1% rule and buying a house in Switzerland

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25% cash & quicker amortisation, I cant see Swiss house prices rising much longer. All things being equal people will only be able to afford a property costing 20% lower than they could last year or less than half the price if they used their pension fund for half of the deposit.
These new standards are for investment properties only, not for owner-occupied, so I don't think it will have a huge impact.
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Old 28.01.2021, 11:06
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Re: 1% rule and buying a house in Switzerland

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25% cash & quicker amortisation, I cant see Swiss house prices rising much longer. All things being equal people will only be able to afford a property costing 20% lower than they could last year or less than half the price if they used their pension fund for half of the deposit.
We are talking about buy to rent, as the mention of investment properties clearly indicates. The whole purpose of these measures is to prevent property investors driving prices up further and beyond the reach of people who want to buy their own house to live in. This was a self-regulation decision taken by the banks themselves.
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Old 28.01.2021, 11:13
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Re: 1% rule and buying a house in Switzerland

It is a terrible investement. Nevertheless I am doing just that & and it is yielding me 3%
Still beats my stockpicking skills....

But only renting it out because I moved (downgraded to Aarau...) and did not want a lump of money sitting in a bankaccount. I probably should sell and put it into VWRL.
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Old 28.01.2021, 11:18
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Re: 1% rule and buying a house in Switzerland

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We are talking about buy to rent, as the mention of investment properties clearly indicates. The whole purpose of these measures is to prevent property investors driving prices up further and beyond the reach of people who want to buy their own house to live in. This was a self-regulation decision taken by the banks themselves.
Amazed that the deposit requirement is so low for rental properties.
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Old 28.01.2021, 22:14
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Re: 1% rule and buying a house in Switzerland

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Amazed that the deposit requirement is so low for rental properties.
It's based on the assumption that we get 50k+ immigrants per year who can actually hold a job.

There was a local "glut" of rental property already before the whole COVID thing in some places. Now that a lot of low-paying jobs in gastro, "events" and retail (where you need two people work 100% realistically to make rent and not come out with zero) just don't exist anymore, I'm pretty sure a lot of developers will try to stretch it to 2022 or 2023.
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Old 31.01.2021, 14:40
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Re: 1% rule and buying a house in Switzerland

Yeah, i plan to live in it for a start, but I would like to know that I could rent it out at a good price in case I move. So I will not have to have a large downpayment. The main focus is if it's a bad investment or not. Would it make sense to keep renting a home and buy real estate in countries with a better price-to-rent ratio?

You can say a good price-to-rent ratio is a security that the house is not overvalued. While here in Switzerland it seems like we have a horrible price-to-rent ratio. And most of the money is made an appreciation of the house.
I'm also skeptical that house values will appreciate at the same speed it did the last 20years due to reduced immigration and no more banking secrecy.

So this is a combination of finding a place to live and also doing a good investment. I would put aside my personal comfort needs here in Switzerland and make sure it's a good investment.

Why you think?


USA:
https://www.globalpropertyguide.com/...ice-rent-ratio
Europe:
https://smartasset.com/mortgage/pric...st-cities-2020
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Old 31.01.2021, 15:01
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Re: 1% rule and buying a house in Switzerland

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Yeah, i plan to live in it for a start, but I would like to know that I could rent it out at a good price in case I move. So I will not have to have a large downpayment. The main focus is if it's a bad investment or not. Would it make sense to keep renting a home and buy real estate in countries with a better price-to-rent ratio?

You can say a good price-to-rent ratio is a security that the house is not overvalued. While here in Switzerland it seems like we have a horrible price-to-rent ratio. And most of the money is made an appreciation of the house.
I'm also skeptical that house values will appreciate at the same speed it did the last 20years due to reduced immigration and no more banking secrecy.

So this is a combination of finding a place to live and also doing a good investment. I would put aside my personal comfort needs here in Switzerland and make sure it's a good investment.

Why you think?


USA:
https://www.globalpropertyguide.com/...ice-rent-ratio
Europe:
https://smartasset.com/mortgage/pric...st-cities-2020
Even paying 25 years rent upfront & be responsible for all repairs going forward seems nuts. Then when I first bought in London in 1983 you were paying 8-10 years rent to buy. The law changed making renting safer for the landlord, no doubts tenants will get a better deal when more people are tenants & the huge increase will slowly unwind.
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Old 31.01.2021, 16:43
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Re: 1% rule and buying a house in Switzerland

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How do prices in Detroit relate to CH?

Tom
Might be a strong contrast to CH but can give you an idea what returns you can get on other markets.
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Old 31.01.2021, 16:48
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Re: 1% rule and buying a house in Switzerland

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It is a terrible investement. Nevertheless I am doing just that & and it is yielding me 3%
Still beats my stockpicking skills....

But only renting it out because I moved (downgraded to Aarau...) and did not want a lump of money sitting in a bankaccount. I probably should sell and put it into VWRL.
Yeah, this is a good example of issues I'm considering. Why did you downgrade? Is it hard to sell house at a gain?
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Old 31.01.2021, 16:50
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Re: 1% rule and buying a house in Switzerland

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most of the money is made an appreciation of the house.
House prices haven't appreciated here in the past 30 years.

Tom
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Old 31.01.2021, 16:52
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Re: 1% rule and buying a house in Switzerland

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We are talking about buy to rent, as the mention of investment properties clearly indicates. The whole purpose of these measures is to prevent property investors driving prices up further and beyond the reach of people who want to buy their own house to live in. This was a self-regulation decision taken by the banks themselves.
This would be my first home. I might downgrade if finances get difficult and rent out the place out and rent a small place for myself as a plan B. But if the house has a bad return on investment and interest rates go up to 3,4,5% i might almost be losing on owning it which might trigger a housing crash in general sense other want to get out of the housing market.
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