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Last year, we bought 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. In this article, I discuss the different considerations about buying and renting houses in Switzerland.
While I speak specifically about houses, it also applies to apartments. But since we bought a house, I have been familiar with the housing market.
There are some differences between the markets for houses and apartments. But most of the same points apply to buying or renting 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 live in as an investment. What I mean by that is that buying your primary residence is not a way to invest money to make money.
In some cases, you will make money on it. But you should not buy your primary residence 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 you some money, which is different.
Just because it is not an investment does not mean you should not consider the financial aspects when deciding to buy or rent. We will delve into 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 to rent than to buy a house or an apartment.
When buying, you will have to go through many painful steps. You will have to do several meetings with the bank. You must provide many documents to the bank and the real estate agencies.
If you are lucky, you will get the first house you made an offer on. But if you are not lucky, you must make offers for several houses. Then, you will have to wait for answers from agents and owners, which can take time and be very stressful.
Once the owners have accepted your offer, you must still sign a reservation and notary contract. All of this will take time and requires several meetings.
We are happy to have bought a house, but buying a house is not enjoyable. In the buy or rent dilemma, renting is easier.
If you want to know what to do, read my guide on buying a house in Switzerland.
Buying will require more work later
When you own your house, you must handle everything that goes amiss.
On the other hand, when you are renting and there is an issue, you generally call the building managers, who handle the problem.
If you have an issue with your property, you must 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 if you are a bit of a handyman. You will need to take care of trees and plants if you have any.
Overall, this will be more work for you if you live in your own house or apartment than if you were renting. On the other hand, you also do not have to deal with possible terrible building managers (I got my load of them). So, it may not be that terrible.
You have more freedom with your property
When you are renting, you will not live on your property. It means you cannot change things in the house.
If you want to repaint the walls, you must ask permission from the owner. If you want to remove a wall, you will probably never be able to do that unless you buy a property.
So, if you want to live in your own house or apartment and change it to your wants and needs, you must buy a property.
You 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 without paying 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
Sometimes, 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. But so 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 available to buy.
I found this is a reason to buy with many people who 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 rent it. When they leave this house, they generally sell it. It means that the market is more saturated with renting houses. And obviously, there are also fewer houses than apartments in general.
It is easier to move when renting
Once you own a house, you will unlikely move to another for several years.
With renting, you could imagine moving every few years or even yearly. But you will not 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 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 must produce at least a 20% downpayment. 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 buy a house.
With that, you must ensure 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 stock market situation, it may be challenging to get enough cash without selling at a 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 its requirements.
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 in Switzerland. You need to consider this if you plan to retire soon. You do not want to be forced out of your house at the moment when you could enjoy it the most.
If you do not have enough income in retirement, the other option is that you can transfer your house to your children. I do not like this solution. I do not want to rely on my children when I am old. But many old people have to use this solution to keep their house.
You must 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 legacy!
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 burden them after you pass. The future is something you should think about when questioning whether you should buy or rent a house.
Buying can be cheaper
Finally, we discuss the financial part of the equation.
When you are trying to decide to buy or rent a house, you will need to consider 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.
Your monthly costs will almost certainly be lower with current interest rates than if renting the equivalent house.
For instance, the kind of house we bought is around 700’000 CHF. With current interest rates, we are looking at about 500 CHF monthly fees. But such a house would cost between 2500 CHF and 3000 CHF monthly to rent.
Based on that alone, we think it is incredibly profitable to buy. But on top of that, we must add around 1% of yearly maintenance (583 CHF per month).
You will also have to consider a stupid tax: imputed rental value. This is a dumb virtual revenue that the tax office adds to your taxable income, which gets taxed as income even though you have never received it. This value differs for each property and is based on how much you could receive if you rent it out.
In our case, this imputed rental adds 1200 CHF to our monthly taxable income. This translates to something like 450 CHF extra taxes 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 put down 140’000 CHF. You will need more for notary and contract costs. In general, you should account for about 25% of the costs. So, we account for 175’000 CHF. If you invest this at 5% per year, you lose 729 CHF monthly.
The downpayment is not lost since it moves values from cash to real estate. And the same stands for amortization.
It gives us 2262 CHF per month for buying and between 2500 CHF and 3000 CHF monthly for rent. In this case, it seems cheaper. But we have not accounted for everything since you need to pay for insurance, water, and real estate taxes. So, buying can be cheaper, but it can also be more expensive when you consider everything.
To know about your case, you must consider all the facts. For instance, these results will change if you use your second and third pillars as a down payment. And it will also change based on where you live and your taxes.
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.
But as we did the math, we save 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 you cannot avoid (notary costs, for instance). So, if you buy houses too often, you will lose money over renting.
We can compare the costs for a few periods (taking 5% into lost fees and 2500 CHF rent):
- 1 year: renting costs 30’000 CHF while owning costs 62144 CHF
- 5 year: renting costs 150’000 CHF while owning costs 170’720 CHF
- 10 years: renting costs 300’000 CHF while owning costs 306’440 CHF
- 20 years: renting costs 600’000 CHF while owning costs 577’880 CHF
As you can see, it takes a little more than ten years for owning to be worth it. This is important to compare things properly.
For example, I published a breakdown of all the fees we paid for one year of house ownership.
If you were hoping for a definite answer as to whether you should buy or rent a house in Switzerland, you would 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 want to do it.
In some cases, you may be almost forced to buy. For instance, there were almost no houses for rent in the region we were looking for in our case. And the few that were available were 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 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 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. 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 the example of Iain, who invested in foreign properties from Switzerland.
What about you? Do you prefer to buy or rent your house?
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