Investing with a 100% paid appartement

Hello everyone,

I have inherited an apartment in Geneva valued at CHF 1’200’000.00 (probably undervalued). The selling price could be CHF 1’250’000.00 according to an estimation. The flat is fully paid and has a cédule hypothécaire of CHF 270’000.00.

I was thinking about mortgaging the apartment in order to invest in real estate and generating an income by renting the apartment. In that regard, I have already settled an appointment with my bank to discuss the different options and requirements.

Since 1st of January 2020, the FINMA requires to bring at least 25% of the value of the apartment when it comes to renting a flat for income. Do you have any experience on creating a mortgage on an already existing owned apartment?

Thank you for your help.

It is very hard to find any information in that matter.

The bank will evaluate the apartment and give you a value. Based on that value you could potentially take a mortgage of up to 66.6% and do whatever you want with that cash.

You could potentially go to 70-80%, but there would be an amortization requirement, so I don’t see a point in doing so.

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that’s interessting, I wasn’t aware that you can take out hard cash and spend it on whatever. I was under the impression that you are only allowed to re-mortage for home improvements or repairs. Is this depending on the bank/lender?

Depending on your loan to value ratio. Up till 2/3 no restrictions by the FINMA, 66.6-90% only for RE purposes.

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The main goal would be to mortgage for a specific project.

For exemple, if the value of the apartment is CHF 500’000.00, I would mortgage CHF 125’000.00 on the first apartment. That amount would be the minimum required to apply for a mortgage of CHF 375’000.00 for the second apartment. Interest and amortization would need to be covered by the rental profitability. Also, we have to take into account the first mortgage of CHF 125’000.00 that would also need to be covered.

I believe for an investment property in CH the bank may lend max 75% subject to rent covering mortgage at a 5% rate that is used for stress test

I often read about this kind of creative “recycling equity” / no money down financing from investors in RE in US or UK. I don’t think it works for a small investor in CH. Consider the different tax rules, stronger tenant protection laws, SNB regulations, competition from professionally run pension funds and low rental yields.

Swiss real estate discussed here

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