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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.
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?