Should you buy or rent a house in Switzerland?

Categories Real Estate, SwitzerlandUpdated on

(Disclosure: Some of the links below may be affiliate links)

Should you buy or rent a house in Switzerland?

We are currently in the process of buying a house. Since I shared this fact on the blog, I have been asked several times whether people should buy or rent in Switzerland.

So, I wanted to share my thoughts on the buy or rent subject. I am going to go over the different considerations about buying and renting houses in Switzerland.

While I am going to speak specifically about houses, most of it also applies to apartments. But since we are looking for a house, I am more familiar with the market for houses.

There are some differences between the markets for houses and apartments. But most of the same points will also apply to the question of buy or rent an apartment in Switzerland.

Your primary house is not an investment

While real estate can be a good investment, you should not consider the house you are living as an investment.

In some cases, you will make money on it. But you should not buy a house to live in to make a good investment. You should buy the house you want to live in. In most cases, you will not make any money by purchasing the home you are living in.

Buying to rent is another entirely different story. I will not cover real estate investment here. If you compare buying to live in and buying to rent or investing in the stock market, your house will be a bad investment. But it could save some money, which is different.

Now, just because it is not an investment does not mean you should not consider the financial aspects of buying vs renting. We will delve in these factors as well in this article.

Renting is easy

Sometimes, you will have some trouble finding an apartment to rent. But overall, it is much easier than buying a house.

When you are buying, you will have to go through many painful steps. You will have to do several meetings with the bank. You will have to provide many documents to both the bank and the real estate agencies.

If you are lucky, you will get the first house you made an offer. But if you are not, you will need to make offers for several houses. Then, you will have to wait for answers from agents and owners, and that can take time and be very stressful.

Once your offer has been accepted, you will still need to sign a reservation contract and then sign the notary contract. All of this will take time and requires several meetings.

We are happy we are buying our house, but the process of buying a house is definitely not enjoyable. In the buy or rent dilemma, renting is definitely easier.

Buying will require more work

When you own your house, you will have to pay for everything that goes amiss.

On the other hand, when you are renting, and there is an issue, you generally call the building managers, and they take care of the problem.

If you have an issue when you own, you will need to call a professional (finding a good one may not be easy) and get them to come and fix the issue. And of course, you will have to pay for the work.

And you can expect to do more things yourself as well if you are a bit of a handy-man. You will need to take care of trees and plants if you have any.

So, overall, this will be more work for you if you are living in your own property than if you were renting.

You have more freedom with your property

When you are renting, you will not live in your property. It means you cannot change things in the house.

If you want to repaint the walls, you will have to ask permission from the owner. If you want to take down a wall, you will probably never be able to do that unless you buy a property.

So, if you want to live into your property and change it to your wants and needs, you will need to buy a property.

You just need to remember that even if you own a house, the bank also owns a large part of it. It means you cannot do everything you want with the house unless you pay the entire mortgage.

Another advantage in the same subject is that you do not have an owner that can decide not to renew your lease. This makes it easier to have long-term plans for your future. Of course, if you run out of money, your bank could force you to sell. So, it is not all that good either. Now, if you are living well within your means, this should not be an issue.

Houses are not available to rent

In some cases, you will not have a choice to buy or rent a house. In many regions of Switzerland, it is challenging to rent a house. There are some houses to rent, of course. But so very few of them that it is tough to find one to rent.

It is the case for us in the region of our choice. In our selection, we have found only two or three houses that met our requirements. On the other hand, we have more than ten that were available to buy.

I found that this is a reason to buy with many of the people that want a house. It is different from apartments where a ton of them are available to rent.

In Switzerland, most people buy a house to live in it and not to rent it. When they leave this house, they generally sell it. It means that the market is more saturated with renting houses.

You have more flexibility with renting

Once you own a house, you are unlikely to move to another before several years.

With renting, you could imagine moving every few years or even every year. But you are not going to buy a house every year. For one thing, it would be too much trouble. And it would also cost too much money.

So, if you do not think you will want to live a long time in the same place, you should not consider buying! Buying is a long-term decision!

Buying requires funds

When you buy a house, you will need to produce at least a 20% down payment. 20% is what banks currently ask in Switzerland.

Out of this downpayment, half of it must be cash, and the rest can be pension assets. So, you will have to accumulate this money over time to be able to buy a house.

With that, you have to make sure that you are not getting low on cash. You need to keep your emergency fund. And you need to keep a buffer for safety.

If you are investing in the stock market, you may have to sell some shares. Depending on the situation of the stock market, it may be difficult to get enough cash without selling at loss.

When renting, you will probably have to set aside a few months of rent as a guarantee. But this is about all the cash you will need.

Buying can be a burden in retirement

Every time you have to renew your mortgage, you need to meet the requirements for such a mortgage.

This burden is not a problem while you are working. But this could be a problem when you are retired. If your income in retirement does not meet the requirements of your mortgage, you may be forced to sell the house.

This situation is sad, but it happens a lot in Switzerland. You need to take this into account if you are going to retire soon. You do not want to be forced out of your house at the moment where you could enjoy it the most.

The other option if you do not have enough income in retirement is that you can transfer your house to your children. I do not like this solution. I do not want to have to rely on my children when I am old. But many old people have to use this solution to keep their house.

You need to be careful about this if you plan to retire in Switzerland.

A house can be a good legacy

If you want to leave a good legacy for your children, a house could be the perfect one!

If your children have a good memory of growing up in your house, they will probably be happy to get the house after you. And it could be a good inheritance as a tangible asset.

Now, it is a bit of a dual-edged legacy. If you have many children, it may not be easy for them to share the house. In some cases, maybe your children do not want a house. And finally, maybe your children cannot afford the mortgage on the house. There are often some issues when an inheritance contains a house.

So, you have to be careful about your inheritance and your house. When you are growing older, you should discuss the subject with your children. You do not want to put a burden on their heads after you pass. The future is definitely something you should think about when you are questioning whether you should buy or rent a house.

Buying can be cheaper

Finally, let’s discuss the financial part of the equation.

When you are trying to decide to buy or rent a house, you will need to consider the price of both. In some cases, buying can be cheaper. But it is not as great as people think it is. Computing the real costs of a house is more complicated than it seems. And many people do this computation incorrectly.

With current interest rates, your monthly costs will almost certainly be lower than if renting the equivalent house.

For instance, the kind of houses we are currently looking for is around 700’000 CHF to buy. With current interest rates, we are looking at about 800 CHF fees per month. But such a house would cost between 2500 CHF and 3000 CHF per month to rent.

Based on that alone, we would think that it is incredibly profitable to buy. But on top of that, we need to add around 1% of maintenance per year (583 CHF per month). And we should add the lost down payment as well. Over 20 years, this would add 583 CHF per month.

Even with all that, buying still seems like a great opportunity. But we forgot one big thing: the opportunity cost. Many people thinking of buying a house are ignoring this completely.

For a house at 700’000 CHF, you will have to pay 140’000 CHF. You will need more for notary and contract costs. In general, you should account for about 25% of costs. So, let’s account for 175’000 CHF. If you invest this at 5% per year, you are losing on 729 CHF per month.

It gives us a total of 2695 CHF per month for buying and between 2500 CHF and 3000 CHF per month for renting. So, buying can be cheaper, but it can also be more expensive when you take everything into account.

If you want to know about your case, you will need to consider all the facts. For instance, these results will change if you use your second and third pillar as a down payment. And it will also change based on where you live the taxes you are paying.

We considered all these things before we started looking for a house. We did not want to lose too much money on buying when we could have rented. That would be dumb. And we are trying not to be dumb.

But as we did the math, in our case, we came out with saving some money over the long-term. It is not a huge difference since a bigger house means more furniture. And owning your house means you will want to improve it over the years as well. But overall, it looks good from a money point of view. It is not a great investment, as mentioned before. But it is not a stupid one either.

Now, there is one important thing here: buying is only interesting financially in the long-term. Buying a house has some serious costs that you cannot avoid (notary costs, for instance). So, if you buy houses too often, you will lose a lot of money over renting.

Conclusion

If you were hoping for a definite answer to the question of whether you should buy or rent a house in Switzerland, you will be disappointed. There is no such answer.

There are pros and cons to both buying and renting a house. You will get more freedom by buying your house. But you will also need to do more things yourself.

From a money point of view, there are cases when buying is advantageous. Given the current interest rates, it could be a perfect time to buy if you are looking to do it.

In some cases, you may be almost forced to buy. For instance, in our cases, there are almost no houses for rent in the region we are looking for. And the few that are available are highly overpriced.

When you are considering whether you should buy or rent, you should think about retirement. When you are in retirement, you will have a lower income. It means it could be difficult to keep your mortgage.

So, buying can be great, but it is a lot of work and a lot of responsibilities. You can live a great financial life by renting your house. And you can live a great financial life as well by buying it. You should not believe people that tell you that only buying is right or that only renting is right. The buy or rent debate has no definite answer. There are too many parameters.

You need to choose the solution that suits your situation the most!

  • For houses, there are definitely more opportunities to buy since not many houses are available to rent.
  • For apartments, there are many more opportunities to rent, so it is another story.

As mentioned before, there are some differences between houses and apartments. We are only thinking about buying a house in the countryside. So your mileage may vary. But overall, the same points apply to whether you should buy or rent an apartment.

If you are interested in real estate as an investment, you should read about the example of Iain, who invested in foreign properties from Switzerland.

What about you? Do you prefer to buy or rent your house?

Mr. The Poor Swiss

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

18 thoughts on “Should you buy or rent a house in Switzerland?”

  1. This is exactly the kind of article that sends people crazy. A lot of useful information but a bland conclusion. People don’t want to be confronted with the freedom to choose, it is in human nature the subtle laziness and anxiety of interpretation that pushes human beings most of the time to want only to be guided.
    All in all it seemed to me a very good article, not a good move for the growth of the forum, but still a very good article!

    1. Hi Andrea,

      The conclusion may be bland, but it’s the truth. I am not going to make up the conclusion that renting is better than buying or vice-versa just to have a conclusions.
      If people want articles that lie to them or are devoid of information, they will find more than enough blogs ready to serve this kind of content, I do not want to be one of them.

      Thanks for stopping by!

  2. There is also the concept of owning your house (much more prevalent in the US) as opposed to the Swiss “perpetual mortgage.” I would be curious about the long term math on this. For example in the US mortgages are typically 30 years until you have paid for the house. If however you can pay one extra monthly payment per year, it reduces the payment period almost by 1/3! Yet I realize in Switzerland you are penalized for example if you pay off your mortgage early. Seems like a system that is heavily weighted in favor of the banks…

    1. Hi Brian,

      That’s a good point, it’s a big difference between Switzerland and the rest of the world (especially the U.S.). I have an article coming up about mortgages where I will talk about this.
      Yes, in Switzerland, we do not pay off mortgages. In theory, you can pay it off, of course. But in practice, there is little incentive to do so.
      Since mortgages are really low interest right now, it does not make much sense to pay them off since this will increase your taxes, and investing this money would be significantly better.
      But it’s true that in the very long term, this is a very good system for banks :P

      Thanks for stopping by!

  3. Hello, Could you also share some light into the tax perspective of owning property? I heard there are quite a huge amount to pay for tax to account for the rental value in the house/flat even as primary resisdence. After tax, would it still be saving cost by buying?
    Thanks!

    1. Hi Vivien,

      There are indeed some taxes for owning properties. There is a tax based on the value of the house. And there is also a stupid tax based on the income you could get if you were renting the house.
      I am counting that in the yearly maintenance fee of owning the house. To be honest, I do not know how much this is going to be since there are way too many factors:
      * Where you live, state and county
      * How much income you already have
      * Your marital situation

      In the long-term, I believe you can save money by owning a house. But if you keep a house for something like 5 years, you will always be worse than renting.

      I hope that helps a little.

      Thanks for stopping by!

  4. Thanks for this analysis. It’s good to see your differentiated conclusion and it adds to your credibility. I have been pondering on this question a lot myself, albeit for an appartment. Here is a stat that has put me firmly into the ‘rent’ camp: where we live, apartments sell for >35x annual rent. If you google advice on buy vs rent from only a few year ago anything above 25 is considered too expensive to buy. So the argument of low interest rates are great for buyers does not hold. They are great for sellers and as a buyer you to hope that someone else can afford at least the same price in real terms in the future.

    1. Hi Mario,

      This is a good point. Based on where you are in Switzerland, the price to rent ratio can be very different. There are too many disparities in Switzerland to make a general formula.
      For instance, for the houses we are considering, the Price-To-Rent Ratio is between 20 and 25.
      But once again, it depends if you are considering your house an investment or not :)
      If it’s an investment, you want a very low price-to-rent ratio indeed, especially if you are going to rent it out.
      Also, keep in mind that the Price-To-Rent ratio is also considered in some countries where people are paying off their mortgage. In Switzerland, we are only paying 35% of the mortgage after 15 years. This means that the interest rate is more important than it could be in some countries.
      But completely agree with you that in some places, it does not make sense financially to buy.

      Thanks for stopping by!

  5. When we lived in NYC, it was an expensive market like Switzerland so the buy v. rent calculation was not so straightforward. We rented for a long time and invested outside of NYC. We ultimately bought in order to lock in our housing costs and also to have a family legacy — we figured our kids and us would always want a base there. But these are consumption reasons. From an investment perspective, for a long time it made more sense to rent.

    1. Hi Caroline,

      Thanks for sharing your experience with buying and renting!
      It is a good point that buying also allows you to lock the costs more or less. With renting, you are more subject to inflation.

      Thanks for stopping by!

  6. Very good article. The only thing I would add (maybe it is already stated in the article and I may have missed it) is that you will own the house in the end of the mortgage, which obviously would not be the case in the case of renting it. Therefore, you need to take into account the mortgage principal that is payed monthly as an “asset” that you will own. In the example you gave, I’m sure that the conclusion would be to buy a house ratter than renting it because the mortgage principal would reduce the cost of “owing a house” part of the calculation.

    1. Hi Mr. Bragagnolo,

      Actually, in Switzerland, we do not pay back our mortgages. So in the end, most of the house will still be owned by the house.
      We have a weird system where it does not make much sense to pay back your mortgage because it increases taxes.

      But it’s a good point that the mortgage principal gives you an asset. However, you cannot invest it as well as you could if you were renting. But it’s true that I should not take the downpayment as a cost. Good point!

      Thanks for stopping by!

  7. Just my 2 cents, maintainance costs are generally tax deductible in CH. On the other hand, if I understood the system correctly, once you sell the house (and hopefully part of the renovation will result into increasing the value of the property) you will get taxed on that amount at potentially higher rate (depending on canton and time of sale).

    1. Hi Yiannis,

      That’s a good point!
      Most costs are tax-deductible indeed.
      I didn’t know about the higher tax rate at selling. I know that we are taxed on capital gains for properties. But I did not know that there was something special about renovations.
      I will have to dig deeper into it.

      Thanks for stopping by!

      1. Maybe I am wrong but my understanding is that:
        Let’s assume you buy a house for CHF 800k and you do renovations of CHF 300k and the tax man considers that the CHF 200k out of the CHF 300k is value preserving and the remaining CHF 100k is value adding. Then you can deduct the CHF 200k from your income tax where let’s assume is somewhere in the range of 30%. Now assume you are semi-lucky and you sell your house at CHF 1.1m (i.e. the CHF 800k + the CHF 300k of renovation). Then I understand that your capital gains are CHF 200k which is the sale price (1.1m) minus the purchase price (800k) minus the value adding portion of the renovation (100k). This is the same as the amount you have deducted from your taxes however capital gains in BS for instance can go as high as 60% which means that you lost 30% of CHF 200k. (Since you now pay 60% but have deducted only 30%). Or i am missing something?

        1. Hi yiannis,

          I have had to research this subject because I did not know much about selling houses :)
          Reading the articles about this, it seems your math is entirely correct. If the tax rate on the capital gains is higher than your marginal tax rate, you need to be careful about your investments in the house.
          However, for your primary residence (where you live), the tax is only 30% in Basel. And for other properties, it starts indeed at 60% (which is pretty much insane!) and goes down to 30% if you keep it longer (a lot of information here).
          But you are right that this really defeats value-preserving investments if you are going to sell. I did not think taxes were so high.
          I also checked in Fribourg. Fortunately, the real estate capital gains taxes here are much lower! They start at 22% if you sell within 2 years and go down to 10 if you hold your house for more than 15 years.
          This is really interesting, thanks for making me research that!

          1. I have seen the pdf on the page you shared but to be honest I have failed to notice the footnote about the primary residence! Thanks a lot for that; even though I do not plan to sell in the foreseeable future I was horrified with the idea of having to pay such a high % on the renovation amount I spent in case I had to sell! Speaking on the footnotes how do you interpret the second footnote of the same pdf? Do the value increasing renovations get deducted from the capital gains tax by a factor of 1.5? This would totally make my day :-)

            Good that Fribourg has more reasonable capital gains tax rates! Without knowing the marginal tax rate there, I guess it makes a lot of sense to do the renovations since the net result probably results into an overall tax benefit.

            Thanks again for the great post and the fantastic blog in general!

          2. Hi Yiannis,

            This is the way I understand it yes. All value-adding investments are removed from the capital gains with a factor of 1.5. But it seems that the note also includes the fact that the tax cannot go lower than 30% anyway. But my limited German is not the best reference here.

            Yes, with lower capital gain taxes, it is good to increase the value of the house here as long as you keep it for a long time.

            Thanks for stopping by and thanks for your kind words!

Leave a Reply

Your comment may not appear instantly since it has to go through moderation. Your email address will not be published. Required fields are marked *