Buying first property: sanity check needed!

Real Estate
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Hi all,

Long-time lurker here, thanks to all for the incredibly valuable contributions over the last years!

My partner and I are looking at buying our first place. Currently seriously considering a new-build PPE in a small town on La Côte (Vaud), around CHF 1.2M (86m², 4.5 rooms). I keep going back and forth on whether this is a solid move or whether we’d be making a very bad financial decision. So I figured I’d lay it all out here and see what you think.

About us: Mid-30s, one 4 y/o kid. I’m working at 80% making ~CHF 80K + about 5K bonus, she just started a new job at 60% for ~CHF 55K (still in probation). Household gross ~CHF 140K.
Our finances:

  • ~CHF 300K in savings, of which roughly CHF 180K is in ETFs/shares (mostly global index)
  • Up to CHF 300K donation from my parents
  • ~CHF 150K in 3A (both VIAC, mostly equities)
  • ~CHF 80K in 2nd pillar combined

So ~CHF 830K total, which sounds like a lot, but the issue is obviously the income. CHF 1.2M is 8.5x our gross income. To meet the affordability criteria, we’d need to put a significant down payment.

For down payment, the obvious move is cash + donation = CHF 600K, which after notary fees gives us ~CHF 550K down and a mortgage around CHF 670K. Safe LTV of ~55%, no amortisation, no pension money touched. Great on paper. But that would mean selling most of our ETFs/shares to fund it. Which feels dumb as we’ve been building that portfolio for years, and selling it to park the money in an illiquid apartment at a time when I could borrow at 1.5%…we have doubts.

Would it make more sense to keep the ETFs, take a bigger mortgage (say CHF 780–800K, still under 66.67% so no amortisation), and use the cash that’s just sitting in savings accounts instead? Or even withdraw 3A / 2nd pillar for part of the down payment and keep the invested money compounding?

The affordability calculation puts us at about the 33% threshold, so possible but barely. On rates, I’m looking at a 5-year fixed at ~1.45% and then refinancing, vs locking 10 years at ~1.80%, vs just going SARON at ~1.1% and hoping the SNB keeps rates low. We’ve got an 18-month construction period before the mortgage even consolidates, which adds another layer of uncertainty.

What I’d love your take on:

  • Are we crazy in even considering this? Should we continue renting at CHF 2’500-3’000 per month for something comparable?
  • At 8.5x income with a probation salary, are we stretching too far?
  • Down payment mix: sell the ETFs, or borrow more and keep them? Or even dip into 3A/LPP instead?
  • Rate strategy: 5-year, 10-year, SARON, split?
  • Buying on plan (construction loan + general contractor model): anyone done this? What should we watch out for?

Appreciate any honest feedback!

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Without entering into the specifics of financial arrangements, I would consider renting initially and then saving towards a more spacious property. A residence of 86m² might not be ideal for a family, and purchasing a property can often be a long-term commitment.

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A mental model that might help.
Purchase price x 5% = theoretical annual rent

..you could pay before owning becomes financially more viable.

In your case that would mean a monthly rent of about 5500 chf.

This is: Given you rigorously and disciplined invest excess income capital that would be allocated to the house financing - (most renters dont)

So buying a house while saving less than this amount comes down to a lifestyle decision with extra cost attached.

While this is a very tough model/back of the envelope calculation (includong rent apprecation, property value appreciation, inflation, properrty sale taxes etc, asssuming investment in low cost all world etf.) the actual cost of owning is often suprising to many people when you factor in opportunity cost of alternative investments.

In Switzerland this is more pronounced then in other countries due to the lack of capital gain taxes on stocks (unlike real estate).

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In my personal view that place will soon be too small for you especially if you would like another kid in the near future. This is crucial to consider whether you will need an extra room or not for your purchase, as a buy and sell in the first 7 years can be very expensive and not wise due to the notary fees involved.

If I were you, I would go for a bigger place from the get go. I would sacrifice all the ETFs because I can tell you a piece of mind of your place is priceless. You can rebuild your portfolio with the savings you will do by not paying that hefty 3000.- per month rent. Your mortgage will be less than a grand. 10 years living in your own place and you will have your ETF back.

I think buying an appartment for that price and m2 sounds expensive to me. A quick search on comparis gave me this:

https://en.comparis.ch/immobilien/marktplatz/details/show/36663860

This place will hold future value better IMO compared to the appartment you mentioned.

But it all depends on what you want.

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Buying larger than you need right now is very expensive and affordability is already stretched.

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On this forum I see a lot of people advocating for renting over buying but I cannot see the math working so clearly. Quiet simply, renting a compatible property is 4500CHF a month and that udually excludes charges, mortgage is 850CHF.
E.g., we looked at buying a house like this but decided it was too small: 5½ Rooms Haus in 1185 Mont-sur-Rolle – Property Market by comparis.ch

but hard to do good comparisons as you have opportunity costs of your downpayment, increases in rent, house appreciation, capital gains taxes on property etc.

I cannot find a link but one of he swiss papers did a comparison of buying vs renting and the whole la cote region was markedly cheaper to buy than rent. It is very different to buying within a city.

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Stick towards the 65/66% because if you only need one non amortising mortgage the bank will see an increased affordability because you they will consider you don’t need to amortise in your monthly budget.

I wouldn’t bother with getting to 55% but if you could get below 50% LTV which may be a future aim you could better rates for being a lower risk mortgage, but I don’t think it’s worth getting to that step.

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From the OP:

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Good question. Do you really need to buy a property? How stable is your professional situation, would you be able to stay there for 20 years? Can you rent something inexpensive close to where you want to be (a naïve question, I know).

Rationally, it makes absolutely no sense to have a savings account earning 0 and borrow at 1.5% - above the emergency fund. You should define an emergency amount and use the rest for the downpayment or to invest. This cash pot should include gifts, because money are tangible and, again, rationally, you should make no distinction between cash coming from different sources.

Again, rationally, I would contribute only the absolute minimum necessary. 10% should come from cash, no negotiations. But then your pension fund comes into play. You can withdraw it and use for a downpayment - you seem certain that you have affordability problem, so pledging it doesn’t look like an option. So, if the alternatives are to use the second pillar for the downpayment and invest spared cash vs. use cash for the downpayment instead of investing, the choice should be clear.

I also would not take a very long term mortgage, because you pay a dear premium for a perceived safety. Max 5 years. You will have to refinance, but just having enough of other assets is sufficient to give you more negotiation power, you don’t have to actually liquidate them to repay.

This is what a rational reasoning should tell you. In reality it is more difficult. You may treat the gift from parents differently from other cash (various psychological biases at play). Your parents might see not favorably the fact that you use “their” money “to play” instead of buying home sweet home (same on their side). You and/or your wife might think that having a pension fund is safer than investment in stocks, and this is not necessary wrong. Et cetera.

P.S. You should not touch 3a if it is invested in stocks. This is the best type of investment available for residents in Switzerland.

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Indeed this is a small one. You will probably decide to have more children, and then what?

Reading it again, your situation looks great without a property, but buying it makes it very stretched. So I would rather advice against buying.

P.S. you can also try a professional financial advisor.

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Btw, a friend of mine got a second mortgage and bought a flat close to Zurich. 4.5 rooms, 120 sqm, 1.1 million. His total monthly cost is 1800: 1000 interest and 800 nebenkosten. He wants to put a wall in the living room and rent it out ot 5 different people, 1000 per room. 5000 income, 1800 cost. Not bad huh?

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How did you do your affordability calculation?

Total value of 1.2M → theoretical costs of maintenance at 1% of total value = 12’000.-
Mortgage of 670k → theoretical interests of 5% of mortgage = 33’500.-
No amortization.
Total cost of 45’500.-

Total incomes of 80k + 55k = 135’000.-
Financial capacity of 1/3 of gross income = 45’000.-

I would think the 670k mortgage is already at the limit of standard affordability criteria. Banks can stretch it so more may be available. Have you discussed with your bank to see how much they would be willing to lend you?

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Not crazy, but what is your reason for buying? “Our first place” doesn’t sound like it’s your dream home. Financially, there’s a good chance you’ll be just as well off with paying rent.

Kind of. Of course depends if you plan your income to be stable or certain.
You plan with all your savings and money from the parents on top, and yet affordability is still tight. Manageable, but again: I’d look into your reasons for buying, whether financial or not.

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What are the constraints on owning a PPE ?
Can you rent it if your plans changed in the next 10 years ?
Can you resell it at a higher price if you need to switch ?

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Thanks everyone for the thoughtful responses, really appreciate the different perspectives. For context, we recently returned from a sabbatical and are looking for a place to establish ourselves in the long term (at least 10 years).

I guess the key variable in our situation is my parents’ donation. It is indeed not “only cash”, but a gift my parents would be willing to make specifically to help us buy a home. So putting this into ETFs or share is not an option. This shifts the opportunity cost equation significantly, as we would not be able to invest these 300k and get 6% annual returns.

The specific flat we’re looking at may indeed not be “the one”, even though it checks quite a few boxes for us. It’s big enough for us (we are quite minimalist - we just spent 6 months living in a small campervan as a family of three and it worked just fine…and we previously rented a 3.5-room 70m2 place and didn’t feel cramped) and very well located for us - 2 minutes by bike from a train station on the Geneva-Lausanne axis, 300m from school/shops. Not necessarily planning a second child, although we would consider having enough space with 4.5 rooms.

We strongly prefer a smaller place where everything is walkable or bikeable over a bigger house in the countryside a car is needed for everything (lifestyle choice). Again, maybe not this specific flat, but something similar, and therefore most probably in a similar price range. Something that when renting would probably cost around CHF 2,500-2,800/month + charges. Comparing this with a mortgage of ~800k at ~1.5%, our monthly interest would be ~1000 + ~400 charges = ~1,400. After the tax deduction on interest (assuming a ~20% marginal rate), the net monthly cost is around CHF 1,100. Even when adding the maintenance costs, owning still appears cheaper and we would invest (some of) the difference in ETFs.

On the affordability, the exact number varies depending on the bank but it’s around the 33% mark with the figures I gave. Depends for instance on whether family allowances are considered (not included in our income figures here, so an extra 3800 per year), or whether full bonus is considered or only 80%. We talked to Resolve (mortgage broker) who gave us a max buying price of 1.48 M, and Raiffeisen who considered 1.2 M more reasonable (which we agree with).

Thanks also for the valuable tips regarding LTV, cash vs 2nd pillar vs 3rd pillar, and mortgage duration. Really helpful! We’ll also talk to a professional financial advisor.

So to sum up, we’re interested in buying because (we think that) the monthly cost would be significantly lower than renting equivalent, and we have a one-time parental gift that makes the necessary down payment possible.

Happy to be challenged on any of this. And genuinely grateful for the input, it’s helped sharpen our thinking a lot!

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Good questions. We know very little about the actual PPE (propriété par étage - condominium ownership) arrangement or what is foreseen at this point, and this is one of the points we want to discuss with the promoter. But my understanding is that the possibility of renting depends on the PPE bylaws, which AFAIK do not exist yet. There will only be 6 flats in the building. I don’t think there would be any restrictions on resale value, but good to double check,

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So basically that’s 5000 CHF per month (60K per annum) net income for an asset worth 1.1 MMCHF.

5.45% gross yield is very good. I don’t know many properties that can yield that high. Typically the gross yields are 2% in the city and maybe 3% in village of Canton Zurich.

Now I wouldn’t say cost is 1800 CHF. Your friend also need to pay amortisation of 1% per annum I believe. In addition, with 5 people renting one apartment , it would be more or less like a hostel which would have higher turnover that could add to costs.

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Is it even allowed to put many people into a single flat?

I know in Hong Kong, things go so expensive, they subdivided rooms into (literally) cages, stacking 6-8 cages in a single room.

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I don’t think you can count like that. He himself invested sth like 250k. In order to yield 37k. That’s more like 15% annual yield. Which beats stocks.

Right next door is another flat where already 5 people live. The metal label on the post box looks hilarious. Tiny text to fit in 5 names.

That 1% amortisation converts liability into equity, I wouldn’t count it as a cost. The only thing that changes is the yield, which gradually decreases.

Anyway, I only wanted to share this insight, as it quite shocked me. First of all that you could still buy such a big flat close to Zurich for such a good price. The flat is also in a pretty need and tall building.

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I was talking about yield of the apartment. Which is return on asset value,

I understand you are doing different calculation which is Return on invested capital. But this comes with debt and leverage risks.

These are not the same things.

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