I’m brand new to the world of investing and especially real estate. I would like the advice of this wonderful community to help me have a mindset about whether to buy a property.
I’m from Asia and my girlfriend is Swiss. I work in an international organisation here. There is an apartment available for very cheap to my girlfriend in her home village in Valais for around CHF 200000. Our current net savings (essentially all cash) are just enough that we could buy the house outright. I’m struggling to decide if we should.
We live in Geneva, and I cannot remote work permanently, so the house would be a second home or a winter home for the next five years at least. It will also require substantial investments in the near future (new roof, insulation, fireplace) to be up to code. Finally, it is a single floor in a four story house with the other three floors owned by her family. Putting money into this house will mean I have almost nothing to put into ETFs, which I’ve just started to do.
That was for the cons. The pros include that it is perhaps the cheapest house we can hope to find. The views to the Alps are spectacular. It is high above Valée du Rhône so it is silent, calm, and the air is fresh. On our FIRE journey, it might also mean we have a fallback place to stay if things go pear shaped.
My question, then, is, how do I decide on whether we should buy the house or wait for a different place in the future? What are the quantities, factors, numbers I should be seeking out? Should I get a mortgage or not, and if so, why? I would like to develop a mental framework such that I’m not making emotion-based decisions but more rational ones. Many thanks.
Would you rent it out instead? What would be the yield (after accounting for renovations)
I think it really depends what your goals are, but it sounds like more of a luxury consumption purchase.
Maybe owning a home in the mountains is a dream for you (which is fine and can be worth it if that’s what you want), but financially this sounds like pure consumption with little return?
I wouldn’t put money in my not-even-in-laws’ house. I wouldn’t live in the same building as my not-even-wife’s family, or my wife’s family for that matter.
If the property is meant to be an investment, then do the following:
Study the rental market in that location. An easy first step is to look at the rents being asked on platforms like Homegate, etc. Also track how long ads for rental properties remain active, as that will give you an idea of demand. If you have the option of renting out the property on Airbnb, etc. then check prices and demand there too.
Check if the land registry for that municipality publishes data about prices at which properties were transacted in that location. These will give you an overview of the trend (Average land prices going up over time? At which rate?)
Check whether the property is freehold (you and your co-owners actually own the land that the building is on) and not leasehold (the land is leased). This is absolutely crucial.
Account for all possible costs. Maintenance, the building’s renovation fund, insurance, heating, utilities, taxes, repairs, replacing appliances, etc. Once you’ve got a good estimate, add around 50% to that to be on the safe side.
Check whether the building is in a zone where secondary residences are allowed. Check whether the municipality allows short-term rentals (Airbnb, etc.).
Once you have those figures, you can compare the potential returns with the costs. The higher the investment costs are in relation to the potential returns, the less likely you are to earn a return.
It is also worth calculating the total cost vs. return if you were to use a mortgage rather than buying cash. My personal advice would be to diversify your portfolio rather than putting all your eggs in one basket.
If you actually lived in the property, then you could add the rent you would otherwise pay to your returns.
Also bear in mind that properties in less-populated regions like Valais have a higher risk of vacancy than properties near urban centers. Short-term rentals can work well if the property is in/near a tourist hotspot, but that isn’t possible with all properties (check local regulations).
If the property is meant to be a personal holiday home / secondary residence:
Become a multi-millionaire first . Once you get there, you’ll be able to afford those kinds of luxuries. Until then, why play at being ultra-rich? There are holiday rentals and hotels in the meantime.
A buy decision is easy: yes or no. Probably for the long term it will be a decision to stay with your girlfriend or not. And still it is easy: yes or no…
(I’m old and most of my failures in life came from love. I would chose “no” today…).
Thank you all for the helpful replies, gives us plenty to think about.
First of all, I can appreciate concerns about whether we stay together long term, as I imagine it comes from horror stories that you, or your loved ones, might have been through. Never say never, but we are both not that young anymore, have been around the block, and have already been together a fair while, so chances are that we are together for good.
For the other points:
My girlfriend would absolutely buy it herself if she could, because it is her childhood home, but she cannot afford it for the moment.
The village is tiny, and there is no real rental market. Homegate reveals only two pre-historic advertisements. As I said, it is not to rent it out. It is half-indulgence (of a fashion) and half having a place to call our own.
My contract is time-limited. It finishes in five years from now.
I like the idea of also talking to the bank and seeing what they say.
Yes, we can probably sell it afterwards, as another person in the same household is doing this already. But I do not know for how much.
Thanks @Daniel, your post is probably the most helpful of the bunch. To quote Mr. Money Mustache, I’m probably being “too afraid to type shit into a spreadsheet”, but that’s the way to know. I’ll try to calculate the expected returns on both ETFs and the property and see what I get.
In general I’m a big proponent of buying this kind of special real estate. If I were your girlfriend I would think really hard about it.
In your situation I would think really hard about whether I’d want to intertwine finances and invest what appears to be all your savings in a house that is 3/4 in her families hands.
To add, unless your gf is out of work or earning a very low income, as a “not so young” Swiss person she should absolutely be able to buy a 200k!-plus-some-work property on her own if she wants to.
Not saying this particular property is necessarily a good idea but as a general concept.
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. Once you get there, you’ll be able to afford those kinds of luxuries. Until then, why play at being ultra-rich? There are holiday rentals and hotels in the meantime.