Should you buy or rent a house in Switzerland?
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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.
Conclusion
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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Hey Baptiste,
Thank you for the post. I wanted to highlight some parts though that I think come from your personal experience, but extrapolate quite poorly for a lot of the rest of the country.
Mainly, buying a house for 700k that’s livable is a pipe dream anywhere in the Zurich/Schwyz area. I’ve seen absolute ruins that require a very expensive renovations starting at 1M around here. I think one part that you are often missing out on is the RE price / income tax rate relationship. Moving to a high-tax area just to afford a property is just a big financial loss to people with a higher income, but at the same time buying in the low-tax areas might be significantly out of reach, locking a decent portion of the middle/middle-upper class out of property ownership. Let’s not forget that even if you have a level of income that allows you to comfortably afford the 20% downpayment for a ~1.5M property (which seems to be the standard for this area) after a few years of savings, you still would not qualify for the mortgage.
There’s a data crunching experiment that I’ve been meaning to do for a while, that maybe you would be interested in doing and making a post about. If we take the marginal tax rate for every Gemeinde, and the median house price for the same area, assume the 20% downpayment and the rest is in the mortgage, what would the actual yearly cost come out as after the tax relief for debt? I suspect there are some hot spots in the country, where the arbitrage between taxes and housing prices is still possible, but I always wanted to understand how those two things balance each other out. Of course, doing this on the Gemeinde level is hard, but even a comparison of a few major cantons would be very interesting to see.
Sincerely,
A reader
Hi
Indeed, the numbers are very much tied to our example. But you can expand the examples to other levels.
I would not suggest moving to another area just for housing. As you said, you must take taxes into account. We did not even change county when we bought our house.
That’s a good experiment but very time-consuming to run to get all the data. I am sure there are some hotspots. However, it is also highly depending on income, not on tax rate for counties. The marginal tax rates depend on your income mostly. After some level of income, you reach a point where the marginal tax rate is what matters the most, not the property prices.
If I get access to enough data, I will try to run these simulations.
What is your opinion about housing cooperatives?
I don’t have an experience with housing cooperatives, nor an opinion.
We are currently considering buying a property in Luzern.
Given that interest rate is now 2.9% for a 10 year fixed mortgage, it is almost certainly that renting will be significantly financially more attractive compared to buying.
It’s true that this is much more expensive than 3 years ago and it makes a large difference. However, rents are also expected to increase soon.
Hi, I have a friend in Switzerland who is wanting to buy a home there.
He asked me to loan him money because he doesn’t have the initial 20%
He is asking other friends and his wife even asked her sister to take out a loan to support their buying venture- they still haven’t gathered the funds. So I think it’ll be a bit silly of me to lend this friend money correct? If they can’t get their initial finances in order then it’ll be even harder to maintain the house costs (utilities, taxes and otherwise) if they are struggling to put down 20% for the bank to Loan them the remanding funds.
What do you think of the above situation ? Should I lend them the money ? Would they even be able to pay it back? Is it a red flag that they are borrowing money from multiple people ?
Thanks for your time
Hi Sarah,
If they are having so much troubles gathering the 20%, it’s indeed a risk that they then cannot maintain the house and pay all the bills properly after buying the house.
If one person has to borrow from multiple persons for the downpayment, it’s already a bad sign. And nobody should take out a loan to support another person’s loan. The only idea of doing that is ludicrous.
Personally, the only case I would lend the money in this situation is if I know that this is really a one-in-a-lifetime opportunity for a house and they need the money now. And I would only lend money if I know that my friend/family is good enough for money.
What entails a “once in a lifetime opportunity”?
Should I advice them to hold off? Or would that be a bad idea ?
They are borrowing around 60k from friends and family apparently and are struggling to scrounge up the last 10/20k.
With the Swiss banking system- if you take out a loan do you have to make yearly or monthly payments if you are buying your first house? I’m a bit confused by the policy.
In my opinion everyone should live to their means or else one would be in over their heads. There is a lot of emotional pressure to loan/ give them the money (because I doubt theyd pay it back in a timely manner) but my head is saying it’s a bad idea
Let’s say the house of their dreams is being discounted at 40%, I would count that as a once-in-a-lifetime opportunity. But it must be really special.
If I was in your situation, I would recommend my friends hold off until they can afford it. I think it’s good to force people to save 20% as a a kind of entry test. If they can’t, they probably should not buy.
With a Swiss mortgage, you will have to make monthly payments for the interest and some amortization.
Thank you so much for your advice.
I’m happy I stumbled upon your blog, very educational, keep it up!
Thanks Sarah!
Thank you Baptiste for the great article!
Isn’t it unfair to add an opportunity loss of 5% (of 175K) as “extra expense”?
Your initial down-payment (at least the 20% – 140K) increases its value as your house value increases over time. The same stands for the amortization, which you correctly didn’t apply the 5% loss. Of course there is a difference in the return of your investments on e.g. stocks vs bonds vs real estate but I wouldn’t consider this 5%.
Thinking about it, a 2% pa increase in the house value will translate to 10% return to your 140K down-payment (leverage effect).
Hi,
I am not sure I was clear on this part. The 5% is lost! When you buy a house, you will lose about 5% in between notary fees and land register fees, and other one-time fees. I am not considering a 5% loss on the downpayment, I am considering a 5% loss of the entire house value.
You can’t recover this value, it’s gone.
You are writing: “So, let’s account for 175’000 CHF. If you invest this at 5% per year, you lose 729 CHF monthly.”
And then you add the 729 to calculate the total cost to 2262chf.
Unless I am missing something it should be calculated as 700000*5%=35000 (fees loss) and then 35000*5%/12=145chf per month opportunity loss.(instead of 175000*5/12)
So the total expenses would be 1678chf (quite lower).
In any case the huge increase in interest rates nowadays makes things more complicated :/
The downpayment and the notary/land register fees are not invested. So, 25% of the total value is not invested. So you 175’000 * 5%, and this gives you how much you would have gained on average per year by investing this money. If you buy a house, this money is not invested and therefore represents an opportunity loss.
It is clear that the downpayment remains in your house and cannot be invested in stocks/bonds for example.
My point is that the 20% (the 140K, not the notary/land register fees) will return a profit as your house/land increases value over time (on average).
IMHO this profit should also be part of your calculations.
Depending on the house market returns over time and the leverage effect, your return on the 140K(+the amortization) may be comparable to the 5% opportunity loss you are calculating.
The only downside is that it remains in your house. But still, it is not a loss.
Most people highly overestimate profits on house values. In Switzerland, you will not get 5% returns per year on your house.
And that’s not counting that if you want to keep the value of your house, you need to do renovations which often cost more than what you get for them.
I am replying here about your comment “Most people highly overestimate profits on house values…”
According to https://en.comparis.ch/immobilien/preisentwicklung the apartments value almost double in Zurich in a decade.
Certainly more than 50% on average in whole of Switzerland.
For a house of 700K and 50% increase that means a profit of 350K over a 10 years period.
And you only gave 140K downpayment and ~70K for amortization. => 166% profit (rough calculations)!
Although I do not expect this rate to continue in the long term, IMHO it makes sense to put a small percentage in your calculations.
Regarding the renovations you will need to make, you have already put 1% maintenance cost.
That is 140K in 20 years! I suppose it covers also a large part of the renovation cost (if not all of it).
Especially if we are talking about an apartment.
Don’t get me wrong. Your calculations and your site in general is an invaluable source of information!!
Just trying to see if my assumptions make sense or not…:)
If you believe (I still don’t) that house prices will appreciate, you can put this down in your calculations indeed.
However, you have to keep in mind that it does not return anything, even if it appreciates. We are talking about buying vs renting. So, if you buy and it appreciates 50%, what does it do for you? Nothing. if you sell, you are going to either buy a new house which would have appreciated as well and you would be back where you started or start renting and you have to do the calculations again. For it to return, you have to sell the house (and pay a fee on the operation) and then not buy another one, but rent or leave Switzeralnd.
The value of my house does absolutely nothing for me.
Well, historically houses/land appreciate. If you also include the leverage then the returns are certainly not negligible.
Stocks of course perform better, though with higher risk/volatility. (even S&P is down 25% from the start of the year)
With regards to the argument about “zero returns” even if it appreciates, I partially (dis)agree :).
Your house is part of your wealth. As are your stocks, bonds, cash etc.
If you really need the cash you could sell it and get the returns as you would actually do with your other investments.
Much more difficult to liquidize though. I agree with that.
Passing it to your children or leaving Switzerland as you mentioned, are also cases where you (or you children) benefit from the increase of the value.
Finally, another thing that I would put into my calculations is that rents increase over time – though not so much if you do not move.
Thanks for your thoughts. Much appreciate it.
@thepoorswiss
We came out of property ownership (STEW) in Switzerland after a 12-year period of ownership in 2019. I fully agree with all points you list. Further cost points to consider based on experience include:
– building insurance and how this works in the case of an emergency (fire)
– more than adequate personal insurance coverage (hausrat) for the case of an emergency and you cannot live in your property for a period of time and therefore need to stay in a hotel and then rent accomodation over many months
– If taking money out of your 2nd pillar for the deposit, and depending on the size of your mortgage, the bank will require you to enter into gebundene Vorsorge accounts, which are 3b accounts to be saved into every month
– If you break your mortgage earlier than the agreed timeframe, for example for reasons of a property sale, you are liable for very high penalties by the bank – this can be balanced out through the new owners taking on the mortgage that you have, which cancels the penalty cost, however it also results in the new owners expecting a reduction in the price of the property (can be beneficial for taxes, however)
– costs incurred if your house is in a housing complex and shares common infrastructure of any kind, including for example Minergie systems or similar which sometimes are rented infrastructures from the cantonal or city electricity boards, and which the housing complex can decide to buy with upfront investments from all complex parties (especially newbuild houses, which are today increasingly built in complexes); these costs affect apartments more than houses yet could still be valid for houses in new communities, or houses built in ‘reihen’ or semi-detached, and depending on the Reglement of the Housing Complex (always check at research phase).
– Finally, if the property, whether apartment or house, is ‘in baurecht’ (freehold), this can have a negative impact on the resale value in the future.
Kind regards,
uaa.
Hi uaa
Thanks a lot for sharing your experience.
It’s very important to important insurance and how things are covered in an emergency. Excellent point!
Indeed, breaking a mortgage is extremely expensive in Switzerland.
I never had any shared property.
Checking all these points before buying makes a lot of sense.
Hi,
I am a 50-year-old, a real poor guy! A tech phd guy like you can never be classed as poor :-)
Ok, so I live in Zurich, rent a 3.5 room flat worth CHF2000 but due to having a very old contract, pay only CHF1000 per month.
I am thinking of buying a CHF200’000 flat in Valais to holiday and eventually retire in. I have 600k savings sitting in the bank, too scared to invest it in the market, as I don’t understand it well. On the other hand, inflation and low interest rates are wiping my saving’s purchasing power!
I am self-employed so will receive basic pension only.
My options-
– Buy a 200k flat in Valais mountains/hills
– Buy a house in Portugal/Spain
– Buy a rustico in Switzerland for under 100k and do it up for 100k. My needs and space requirements are minimal. No kids etc.
With property, at least it would be mine.
Can you advise me please?
Hi
Yes, I would not say I am poor, but definitely not rich either.
It’s difficult to know exactly, without knowing everything. But it seems indeed wise to invest some of your large savings in real estate, especially if this could cut down your costs for retirement.
Regarding options 1 and 2, I am thinking it would highly depend on where you want to retire. And it’s probably easier to manage one flat in Switzerland than in Portugal.
Another option you could consider is renting it out while still working, to make a little income. You could even make it temporary renting. But obviously, it means you don’t enjoy it as much while working.
As for option 3, it depends on how ready you are to go through all the troubles of renovations. I would personally not do it.
When you say 200K flat, do you mean downpayment or full price? Downpayment sounds high, but full price seems low, no?
Hi,
Yes, you can get decent flats, 65-80 square meters, full price for CHF200,000 in mountainous areas. Houses for around CHF400,000 too (I love mountains). Obviously they won’t be brand new, but in decent condition.
Also, not in hot spots, as similar flats would go for 1.5million+ in sort after areas! Recently I saw two really crap flats in Murren, I enquired the price, 800k for the studio flat and 1.6 million for the 2 room flat!!!!!
Btw, this guy, Martijn Doolaard (YouTube him) bought his property for 26k in the Italian Alps and is living his dream. Stuff like that appeals to me, but maybe I settle for something safer, i.e a flat in a small village in a mountainous region. Decisions!!!!
Example of relatively “cheap” house-
https://www.remax.ch/index.php?t=2&srid=4136304&s=1&page=objekt&id=14314&p=3&lang=en
Hi,
Interesting, I would not have thought it was that low, that’s interesting.
Obviously, we are not talking about high-end ski stations :)
I came across his videos randomly on youtube recently, it’s quite cool indeed but too extreme for me.
Thanks for all the info!
Curious about your opinion on any of these points, if you can spare some time :-)
I am semi interested in a 85m2 flat in the mountain for CHF200k. It looks in decent condition, but the building is from 1985, so 37 years old. Some things that are going around in my head-
1) If I live another 40 years, the building would be 87 years old. Any idea on how long buildings usually last? The group repair pot for the building currently stands at CHF170k.
2) “Das Grundstück ist Eigentum der StWEG zu 100%”. This means all the building occupants own a % of the land, correct?
3) Nebenkosten are around, 4500 per year, so by the time I actually move there in 10-15years, I would have wasted almost CHF75,000 without even living there full time.
I like everything about the flat, and decent mountain views too, but maybe I should not buy it?
Hi,
I really don’t have much experience with real estate. At 200k, if you manage to make it last 40 years, it’s a fair price.
1) I would say a building is generally made to live from 80 to 100 years. But of course, mileage will vary some are of high quality while some are of poor quality.
Renovating will help keep the building longer and having already 170k for the building looks good even though large restoration work can very expensive.
2) I have no idea, my german is bad and google translate is not enough here
3) Don’t waste the money, rent the flat out.
If you don’t move there for 10-15 years, I don’t think it’s a great plan. You should ideally rent it out for this duration and then move in. Otherwise, paying 4500 per year plus interest of the mortgage will be expensive for a vacation home. But it depends on how much you want it and how much you can afford it.
Thanks for this article, I’m 42 and I’m considering buying a second house which would be actually my main house. I bought my first house when I was 30, of course I have a mortgage. Then I moved to Switzerland because of work. So I rented a house in my country and live in a rented apartment in Switzerland. I’ve managed to save enough money for down payment and now I’m considering buying a property here in Switzerland. The problem is that every time I do calculations it seems that renting is better. However emotions play a role and owning a house is something I want so I may still do it even it looks like it doesn’t make much sense financially. Anyway, thanks for the article.
Hi,
It depends on several factors. There are indeed several areas in Switzerland where renting is better financially.
But as you mentioned, they are several advantages to owning your own place (and disadvantages obviously).
I would say it depends on how bad it is financially. If you are looking at 10% worse, it is not a huge deal if you feel better owning your house. But if you are looking at +50%, you should be careful!
Hello Mr. Poor Swiss Man
First of all, I would like to thank you for this detailed and interesting blog, which gives a great insight into your project. I’ve been on your blog for a few days now and was able to pick up some tips, especially regarding the broker recommendation. Really brilliant, I’ve been looking for something like this all year. Since I am in a similar life situation but still before the decision between buying and renting. This brings me to my question.
Regarding the comparison between renting and buying, I wanted to inquire if you have done any further calculations or perhaps simulations on these two options?
I consider your assumptions about the opportunity costs with an interest rate of 5% rather conservative. Just consider what final capital could be created by compound interest over the period as a homeowner. Also, based on the house purchase of 140k, there is no apparent effect on net worth. Except for the notary costs(~20k) in May 2021, I could not find any larger items for house expenses.
Or is that exactly what you mean by one of the first sentences in this blog post “While real estate can be a good investment, you should not consider the house you live in as an investment.”?
That a purchase purely financially considered is not necessarily worth it, but there are also many subjective and personal factors, which can be more important. What I can fully understand.
Can I get in touch with you if I have further questions or would you prefer that questions be placed directly under the corresponding blog entry?
I’m aware that your nights are currently certainly short after you got a baby ^^. Anyway, all the best to you and I look forward to your further blog updates =).
Thank you!
Kind regards
Mr. Druma
Hi Druma,
I have not done any further simulations.
You are correct, that I should take compounding into account and do the computation not per month, but for a period of 20 years.
Buying a house has very little effect on the net worth. You are just transferring cash into real estate. As you said, you are losing on the notary fees and withdrawal taxes. But that’s about it.
I will have to rewrite that phrase. Reading it again, it makes little sense. Buying real estate for renting it out to other people is a good investment.
But if you want to make money (not save) money, buying your own house is not a great deal.
I was trying to say that while it’s not a great investment, it’s not necessarily a bad personal finance move.
If you have further questions, either ask them here in an article or use the contact form :)
I generally like your posts, but I stopped reading after the first bullet point: “your primary house is not an investment”. Hell yes it is. You will need to put a 20% downpayment, which is VERY likely to be a significant part (if not all) of your life savings. This has HUGE implications for your future – historically RE has always underperformed equities. Going all-in a house at a young age is a huge financial misstep for the future, in 99% of the cases.
People have a difficult time grasping this concept because they are convinced that ‘a house is always a solid investment’ while ‘stocks are risky’. Thing is, when you are young and you have 30+ years of investment ahead of you, you should be taking all the “risk”! On 30+ years, investing in equities has always beaten the housing market. A house is an asset like every other and should be treated as such, not with an emotional take of “it is not an investment”.
Generally it is better to wait 10/15 years of work, so to use the 2nd and 3rd pillars and not have 100% of your wealth invested in a house.
No, it’s not. An investment is something that will appreciate your usable net worth.
I am not saying it’s not smart, it can be extremely smart. But it’s not an investment because you won’t ever profit from the capital gains on your house. Most people will live in their house for many years and if they sell the house, they will move into a more expensive one. Or, they will give it to their heirs or they will go back to renting in which it may be an investment but then you have to account for paying more rent again.
And I am not saying that it’s easy. It has huge implications. But you do not buy your primary house to invest money. If you want to invest money, you buy a house to rent it or to flip it or your buy stocks.
Hi there Mr the Poor Swiss,
how about this scenario: you buy an apartment, pay say up to 30%% less monthly than you would have in rent. you life in the apartment for the next 5 years, or alternatively rent it out, and then sell it in 5-10 years with the assumption that the least – you make your house value back, or best case – have an increase of value due to rising property prices.
would you go for that option, and what kind of set-up would you consider?
It’s very difficult to know. I would say it depends on whether you can increase the value of your property. If you don’t, you may have lost value due to purchase fees, extra insurance, maintenance costs and opportunity cost.
For 5 years, I would not consider buying a house or apartment. At 10 years, it starts becoming interesting.