Nice spreadsheet. I was playing with this over the weekend.
I understand that few of us live in Zürich or zug canton. For something relative large (over 120 sq m), nice and a little view. We are easy in the 2m territory. At that level, renting always win. However, the only parameter that could change outcome or making comparison a little closer (beside the interest or return rates), is the use of the 2nd pillar.
One thing that is missing in the model is the optionally to use the 2nd pillar for 10% of the property value. 2nd pillar does not count toward wealth tax and generates often very low return. Plus blocked until retirement, beside exceptions.
Challenge is to have 200k in the 2nd pillar for house of 2mil. Or even more. However, if you are in this league, buying or renting decision will be a much tighter race.
On the topic of 2nd pillar/PK, what are the thoughts of using it for reducing the mortgage/Hypothek, if one made regular payments into it. I am slightly concerned that the whole 1st/2nd pillar modernization won’t go smooth. I am not sure if I can only take out the money I paid into “kind of back”, not willing to take the whole 2nd pillar.
It’s relative. If buy something for 1000k, a 900k mortgage will lead to:
45k interest
15.6k amortization
10k maintenance
So you need a salary of 212k. Increasing your own capital to 20%, you’ll need salary of 177k. Increasing your own capital up to 33.3%, you’ll need a salary of 130k.
Roggwil, Bern: Kaufen ist hier 25 Prozent günstiger als mieten. Der Kauf einer neuen 4-Zimmer-Wohnung kostet im Schnitt monatlich 1800, die Miete 2400 Fr.
Purchase costs 1’800 per month? I wonder what is included in these costs? The interest for sure, but I suspect they don’t include the cost of capital. Invest 300’000 at just 4% annual return and you get 1’000 per month.
But my understanding was that you had to put an upfront 20% capital no matter what. Because by your calculation, if I have a sufficiently hgh salary, my initial capital can go be quite lowe
As far as I know, the income level doesn’t matter for <20% down payment except the usual need for a higher income for a higher mortgage.
You must have at least 20% of the property’s value in equity including pillar 2 and at least 10% in equity must come from outside of pillar 2 (pillar 3a can be used for these 10%).
However, you can choose to pledge the pillar 2 instead of withdrawing from it, which can bring you up to 90% mortgage (if you have 10%+ in your pillar 2a). With a VIAC mortgage you can even get to 100% LTV if you pledge at least 10% of the property’s value using 3a as collateral.
Or maybe it is the heavy tilt toward real estate investments that Pensionkassen have had of late (while dealing with low interest rates) and the population in general is educated to pursue (the dream of being a homeowner, meaning being willing to buy at prices way over what the asset class, when compared on a broader investing scene, is really worth).
The people I’ve talked with want to buy and would do so if they had the means. The deciding factor, when discussing the topic with them, doesn’t seem to be “would it be advantageous for me to buy” (the prevalent narrative being that it is, even when it’s not, because why give money to a landlord when you can build equity instead (and pay interests to the bank…)), it seems to be “I would buy if I could afford it but I can’t”. So they’d bid up the price until they’re no more able to, regardless of the relative value of the asset they’re trying to buy.
Ecaxtly! Self occupied real estate does not only have a financial value. Some people buy expensive cars, other travel a lot, and some save enough money to buy a nice house…
I rewatched Ben Felix 5% rule video and I think it‘s flawed. How he came up with 5%:
1% property taxes
1% maintenance
3% cost of capital. 3% avg. mortgage interest rate and 3% opportunity costs as stocks outperform RE by at least 3% yearly. So it doesn‘t matter what your loan-to-value ratio is as own equity and debt have the same cost.
Why this is flawed:
Property taxes aren‘t as high in Switzerland. The imputed rental is usually about 1.5-2.2% of the buying price of which you can reduce 20% in your taxes. With a marginal tax rate of 25-30% this number comes down to 0.4-0.5%.
Is fine and realistic.
Doesn‘t account for leverage? If the long-term return of RE is 3% and stocks 6%, the difference isn‘t just 3%. With a 80% mortgage your return is actually 5 times higher, 15%!
Any thoughts? What should the rule look like in Switzerland?
5% minimum net rental return is a rule of thumb I’ve heard before. “Net rental return” would mean after maintenance and other costs, but before leverage.
The logic as I undertood it is that the historical average mortgage rate is ~5%. Looking at the US, an investor who applied the rule of thumb whilst rates were at 1-2% had some safety margin. Today the Fed rate in US is 4.5-4.75% with further increases expected and long term mortgage rate ~6.3%.
In Switzerland I would agree that interest rates should be lower than US over the long term considering the different structural factors. Maybe 1 or 2% lower than US?
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
