Buy apartment to secure neighbourhood?

Real Estate
1

Hi there,

I am a long time reader of the forum, now posting for the first time to get your feedback on an important life decision. Let me quickly introduce our situation:

  • 40y + 40y partner. 2 kids under 5. EU nationals on a C permit
  • Living in Zürich city center
  • Roughly 280k gross salary per year (combined me+partner)
  • 1.5M net worth (250k 2nd pillar + 120k 3rdpillar + 1M in stocks/bonds + 100k cash)
  • Currently renting a 4.5 rooms apartment for 3.9k/month (including nebenkosten/heizkosten)
  • Intention to stay in CH (Zürich) for at least 10 years (possibly longer)

We are considering buying a somewhat comparable 4.5 rooms apartment to the one we are living for 2.4M. The apartment is slightly less centric (but still in a very good location) although slightly bigger/newer. The main reasons to consider buying are (in order of importance):

  • Stability of children (public) school due to stability of residence. As far as we know, if we would change apartment in case of our rent being terminated, even if we would be staying in the same or close-by area, the Zurich schooling system will assign you a new school based on your new address.
  • Stability in terms of neighborhood. We like the neighborhood were we live and would like stay there long term.

Although not something that is planned or expected, we would like to avoid that, if for any reason (major renovation, change of ownership…) we are forced to leave our current rental apartment, we are then forced to change neighborhood and school for our children. It is quite difficult (and even more on “short/medium” notice to find an equivalent apartment in our neighborhood which is not 5k+/month).

We are aware that financially, this is not a wise decision, and continuing to rent on current conditions would be financially better (approx. 1k/month better according to my calculations). If we would proceed with the purchase, we would put 0.8M as equity (all our 2nd pillar and the rest coming from our other funds) and ask for a 1.6M mortgage. Not that I feel fully comfortable with such a concentrated investment, but I see no better alternative.

Thoughts? Weak points for this plan? Insights on being able to keep children in their current school despite moving to a different district? (always within Zürich city, so same Gemeinde)

2

I’d start by estimating this probability. Depending on the age of the building/apartment it can be fairly low to the point it really doesn’t make sense to move.

edit: esp. since I suspect it doesn’t matter once the kids start secondary schooling, so it’s really only a few years.

(and Switzerland has strong renters protection)

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3

We are in a similar situation to yours, currently renting well below market price but would really want to minimize the risk of being forced to change neighbourhoods.

There’s two purely subjective questions to consider when evaluating your plan.

  1. The value of significantly reducing the risk of being forced to move.
  2. The value of owning your primary residence.

In our case, the landlord (an individual with no plans of investing in a renovation) sold the building to some company. That prompted us to seriously consider moving to a much more expensive appartment. It would have been a bad choice, because it’s been several years now, and there’s still no sign of us being forced to move (and it would take a significant time between being told to move and actually being forced).

Regarding school assignment, as already mentioned it only matters until they are ~12. The school administrations also understand the importance of stability for the kids, so there should be some flexibility if you ask for some reasonable arrangement, but no guarantees there.

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4

For me that would be probably the most important reason to buy, but buying property in Zürich :exploding_head:…

5

Presumably disruption to kids would be a reason to appeal any forced move.

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6

Yes, my understanding is that one can delay a forced move quite a bit when school age children are involved.

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7

On a separate note, the whole exercise is somewhat sentimental.

I was also concerned when we moved from ZH to a small village 30 km away only to discover that it was the best decision ever and I would never go back.

Assuming that we agree that there are at least a couple of other good places where your life won’t be worse and won’t be better, places where you could buy the same apartment (or house) for half the price, you are paying a premium for the current sentimental attachment (both in terms of rent and potential price purchase).

If this premium is assumed, the rent or buy decision should factor in the other variables to see how you end up financially better. Taking into consideration all the property buying and maintenance costs vs. a potential extra 1k paid for rent at some point in the future (assuming you have to move), I would continue to rent and decide to buy maybe when I’m forced to move. If forced to move you can get a 5k apartment in the area for a year or so until you find something to buy. But until then, you keep paying the current ‘low rent’.

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8

I agree.

It would make sense to take a long time to research different areas before making a massive financial and life commitment in buying a place.

9

I would tend to agree with the other comments. You would be paying a costly premium to cover a risk that is unlikely to manifest itself.

You are in a great financial position at age 40, and the world is your oyster right now. I would also suggest to take your time, research other villages at a lower cost that may have just as good schooling.

Either way 2.4m is almost 9x your annual salary, that’s a heck of a lot of money tied up in your home equity.

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