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Old 30.03.2021, 20:50
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Buying an apartment with cash, implications

Hello everyone

I'm currently living in a EU country and would like to move to Switzerland in a near future.

One of my parent's family is from Switzerland and I have a Swiss passport despite the fact I was not born there. I have also lived in Switzerland for two years when I was a student. So I already know quite a bit about the country, the mentality etc... and I know I would enjoy living there permanently, for many reasons. Also I think my activity would benefit from being hosted in Switzerland instead of my current country.

I'm currently working on developing a business project (all remotely) and my income is not really stable at the moment, BUT I have some cash in the bank / liquid investments (savings from my previous jobs + some inheritance). It would be more than enough to buy a decent apartment in the area I would like to move to.

Given my current working situation, I doubt I would be able to get a mortgage, so it would be 100% cash. I've heard that it is not advisable at all to buy a property without a mortgage in Switzerland, but I'm not sure I understand why exactly. I get that you can deduct some of your mortgage interest off your taxes, but is this all there is to it? Does it really matter for me given that my income is small (for now)? Are there other risks to consider with this kind of operation?

Thanks!
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Old 31.03.2021, 10:30
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Re: Buying an apartment with cash, implications

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Hello everyone

I'm currently living in a EU country and would like to move to Switzerland in a near future.

One of my parent's family is from Switzerland and I have a Swiss passport despite the fact I was not born there. I have also lived in Switzerland for two years when I was a student. So I already know quite a bit about the country, the mentality etc... and I know I would enjoy living there permanently, for many reasons. Also I think my activity would benefit from being hosted in Switzerland instead of my current country.

I'm currently working on developing a business project (all remotely) and my income is not really stable at the moment, BUT I have some cash in the bank / liquid investments (savings from my previous jobs + some inheritance). It would be more than enough to buy a decent apartment in the area I would like to move to.

Given my current working situation, I doubt I would be able to get a mortgage, so it would be 100% cash. I've heard that it is not advisable at all to buy a property without a mortgage in Switzerland, but I'm not sure I understand why exactly. I get that you can deduct some of your mortgage interest off your taxes, but is this all there is to it? Does it really matter for me given that my income is small (for now)? Are there other risks to consider with this kind of operation?

Thanks!
Paying fully or not is your choice

If you have a property you have to add a certain amount to your yearly income.
Let's say normally you earn 100k and pay 30% tax
When you own, over the 100k kanton will add an amount (let's say 10k, based on property value) to your earnings. So your income is now 110k and you pay, let's say, 32% tax.

30% 100k is 33k tax
32% of 110k is 35k tax

If you have a mortgage you can detract the interest
Let's say you have 10k interest
Now your income is 100k + 10k - 10k, so tax is back to 30%

This is super simplified, a tax expert will be able to picture you the best option of your specific case

Almost everyone leave a tranche of mortgage alive for this reason

Last edited by telescope; 31.03.2021 at 10:57.
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Old 31.03.2021, 11:13
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Re: Buying an apartment with cash, implications

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Paying fully or not is your choice

If you have a property you have to add a certain amount to your yearly income.
Let's say normally you earn 100k and pay 30% tax
When you own, over the 100k kanton will add an amount (let's say 10k, based on property value) to your earnings. So your income is now 110k and you pay, let's say, 32% tax.

30% 100k is 33k tax
32% of 110k is 35k tax

If you have a mortgage you can detract the interest
Let's say you have 10k interest
Now your income is 100k + 10k - 10k, so tax is back to 30%

This is super simplified, a tax expert will be able to picture you the best option of your specific case

Almost everyone leave a tranche of mortgage alive for this reason
Basically if you if you SPEND 10,000 in interest you might SAVE 3,000 in tax but overall LOSE 7,000. Apparently Swiss logic goes losing 7000 net is a good deal.
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Old 31.03.2021, 11:16
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Re: Buying an apartment with cash, implications

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Basically if you if you SPEND 10,000 in interest you might SAVE 3,000 in tax but overall LOSE 7,000. Apparently Swiss logic goes losing 7000 net is a good deal.
Except if, and this is the basis for the "Swiss" logic, you can use the capital you're freeing up to earn more than the interest rate you're paying.
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Old 31.03.2021, 11:20
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Re: Buying an apartment with cash, implications

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Basically if you if you SPEND 10,000 in interest you might SAVE 3,000 in tax but overall LOSE 7,000. Apparently Swiss logic goes losing 7000 net is a good deal.
I don't know what is right, wrong or convenient in absolute
I decided to make it quick and amortize the property almost completely
It's more of the fact i like the idea to own it and forget about banks
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Old 31.03.2021, 11:21
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Re: Buying an apartment with cash, implications

Also, the mortgage amount gets deducted from the taxable value of it, so a place that costs 600k, with a taxable value of 200k and a mortgage of 300k has a net taxable vaue of -100k.

Tom
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Old 31.03.2021, 11:27
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Re: Buying an apartment with cash, implications

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Except if, and this is the basis for the "Swiss" logic, you can use the capital you're freeing up to earn more than the interest rate you're paying.
The Swiss historically are risk averse so hold cash rather than equities. Return on cash is negative in CHF if we are talking about the amount to buy a flat.
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Also, the mortgage amount gets deducted from the taxable value of it, so a place that costs 600k, with a taxable value of 200k and a mortgage of 300k has a net taxable vaue of -100k.

Tom
However the 300k in the bank has + 300k value so the overall wealth is identical.
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Old 31.03.2021, 11:32
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Re: Buying an apartment with cash, implications

Thank you for all your responses.

So I understand that the main risk would be to lose what I would have earned if my money stayed invested elsewhere (stock market for example), minus what I would have payed in mortgage interests.

If the value of living in Switzerland rent free, and the benefits it brings to my quality of life and business prospects are superior to the potential loss of income, I guess I can ignore the scary warnings in the line of 'don't ever buy without a mortgage'? I'm just trying to ensure I'm not doing a very stupid thing by my ignorance of local rules.

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Also, the mortgage amount gets deducted from the taxable value of it, so a place that costs 600k, with a taxable value of 200k and a mortgage of 300k has a net taxable vaue of -100k.

Tom
Could you please explain what you mean by 'taxable value'. Does it mean that I'm not taxed on the full value of the property? In my mind if I buy a 600k apartment it would add 600k to my taxable capital?
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Old 31.03.2021, 11:39
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Re: Buying an apartment with cash, implications

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Could you please explain what you mean by 'taxable value'. Does it mean that I'm not taxed on the full value of the property? In my mind if I buy a 600k apartment it would add 600k to my taxable capital?
A 600k property may have an official tax value of 350k, so in that example would reduce your net wealth by 250k for tax purposes, if you bought it, regardless ho you paid for it,
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Old 31.03.2021, 11:40
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Re: Buying an apartment with cash, implications

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Could you please explain what you mean by 'taxable value'. Does it mean that I'm not taxed on the full value of the property? In my mind if I buy a 600k apartment it would add 600k to my taxable capital?
There are different types of tax you pay on property - here a summary:

https://lenews.ch/2014/09/30/propert...y%20this%20tax.

K
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Old 31.03.2021, 12:17
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Re: Buying an apartment with cash, implications

We bought a rustico cash for 90k, yearly property tax is CHF 4.90 (as it is not in our commune of residence and is not a primamry residence, otherwise would be added to the normal tax).

Yes, 4.90, NOT 490!

(as I recall, it's taxable value is only 5k, insured value is 130k)

Tom
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Old 31.03.2021, 14:06
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Re: Buying an apartment with cash, implications

With mortgage rates so low (under 1% for 10 years fixed) there is little interest to deduct - but it‘s the best deal in borrowing money.

I reckon a bank would consider you for a mortgage if you put in 60/70% of the property value yourself.

It may take a couple of years to find the right place though...
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Old 31.03.2021, 15:18
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Re: Buying an apartment with cash, implications

As another poster mentioned, you pay 10k in interest to save 3k in tax. True, but you are not paying any rent, which would likely be much more than the interest and you own the property.

I don't know how much your budget is, but say you go gor a CHF 750,000 property, you borrow 80% so CHF 600,000 and the interest would be +-6,000 a year. Not to bad.

As to mortgage affordability, if you agree to lodge a chunk with the bank, which you put into shares or funds, the bank will most likely be very happy to advance you the money. Either way, cash or mortgage, owning is in my opinion much better than renting.
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Old 31.03.2021, 15:40
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Re: Buying an apartment with cash, implications

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As another poster mentioned, you pay 10k in interest to save 3k in tax. True, but you are not paying any rent, which would likely be much more than the interest and you own the property.

I don't know how much your budget is, but say you go gor a CHF 750,000 property, you borrow 80% so CHF 600,000 and the interest would be +-6,000 a year. Not to bad.

As to mortgage affordability, if you agree to lodge a chunk with the bank, which you put into shares or funds, the bank will most likely be very happy to advance you the money. Either way, cash or mortgage, owning is in my opinion much better than renting.
Alternatively invest in Fundsmith & just pay the rent by cashing in what you need per month, rather than pay 36 years rent in advance. Fundsmith 10 year returns in CHF someone calculated as 12% compound.
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Old 31.03.2021, 15:42
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Re: Buying an apartment with cash, implications

I've read about it, and find a good explanation, that boils down to this:

Since mortgage rates are low (currently), IF you're investing money in some other way, than it might be beneficial to jump into 'keep the mortgage' wagon.
However if you're not investing or your investments don't yield better result than they should to make it worth, then you're better off with paying your mortgage as soon as possible.

Wealth tax for ZH is 0 until you have less than 380k or something.

Check here about that:
https://taxsummaries.pwc.com/switzer...al/other-taxes
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Old 31.03.2021, 15:44
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Re: Buying an apartment with cash, implications

The biggest issue is that you tie up a lot of capital in an illiquid asset. Since you're just moving to Switzerland (even if you've been there before) it's a big step to go all in on a property. What if you change your mind?
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Old 31.03.2021, 16:14
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Re: Buying an apartment with cash, implications

My Swiss sister-in-law bought a modest house ten years ago with cash,180k.


It is rented and she lives in Israel. I never heard her complaining about swiss taxes but about Israel taxes that are nearly a third of the rent.


Only one thing made her sad, that Swiss banks do not offer credit to buy her house, when she would like to sell it. We wanted to buy it just to help her get rid of it and the bank said NO.


Maybe its too modest?
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Old 31.03.2021, 16:18
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Re: Buying an apartment with cash, implications

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The biggest issue is that you tie up a lot of capital in an illiquid asset. Since you're just moving to Switzerland (even if you've been there before) it's a big step to go all in on a property. What if you change your mind?
That's a valid point. I doubt I will change my mind, but if I do, wouldn't it be possible to rent the apartment through an agency and use it as a passive income generating asset? I'm under the impression that it is quite common in Switzerland to have an agency take care of the entire rental process for property owners? I have to invest my money somewhere anyway and I believe I would be comfortable having a large part of my wealth into Swiss real estate instead of letting everything in assets vulnerable to inflation or in the stock market.
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Old 31.03.2021, 20:51
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Re: Buying an apartment with cash, implications

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That's a valid point. I doubt I will change my mind, but if I do, wouldn't it be possible to rent the apartment through an agency and use it as a passive income generating asset? I'm under the impression that it is quite common in Switzerland to have an agency take care of the entire rental process for property owners? I have to invest my money somewhere anyway and I believe I would be comfortable having a large part of my wealth into Swiss real estate instead of letting everything in assets vulnerable to inflation or in the stock market.
depends if what you buy will make a profit or a loss...
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Old 31.03.2021, 21:51
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Re: Buying an apartment with cash, implications

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That's a valid point. I doubt I will change my mind, but if I do, wouldn't it be possible to rent the apartment through an agency and use it as a passive income generating asset? I'm under the impression that it is quite common in Switzerland to have an agency take care of the entire rental process for property owners? I have to invest my money somewhere anyway and I believe I would be comfortable having a large part of my wealth into Swiss real estate instead of letting everything in assets vulnerable to inflation or in the stock market.
Just because there's no daily valuation doesn't mean the value of the real estate is unchanged, or not vulnerable. Quite the contrary.
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