Move (and rent) to pay less taxes?

[Giff]

I am recently started playing with a crazy idea:

• move out of my house in Zurich which and turn it into a rental
• live in a rental flat on the silver coast (Kilchberg/Thalwil/etc)

Moving would be painful, given the time I invested into fixing this place where I currently live. I would also lose the garden, which I enjoy and which produces a non-negligeable amount of fruit and vegetables. I would also lose the relationships I built over the years with the neighbours. Not to mention the loss of freedom of living in our own place, from which nobody can kick us out.

But we live in the wrong side of Zurich in terms of our jobs and the school of our children. Plus at the current level of income we would save something like 1K CHF/month in taxes if we moved to Kilchberg (the other towns come with lower tax cuts, but also lower rents).

I see that I could potentially find a flat big enough for us in Kilchberg for basically the same amount I could rent out my house for, or even (much) less if I decided to go to Thalwil/Horgen.

So financially it should work well, at least until I have a high income (should reach FIRE at some point in 5 to 10 years). It would also mean moving to a nicer area, possibly with a nice lake view, closer to the mountains and to Italy where we often drive for holidays.

But overall I find the idea crazy and possibly opening a hell of applications/rejections/moving/furnishing, i.e., headaches.

It would be perhaps better if I could find something reasonably priced to buy, but prices are just crazy and there is simply not much out there for sale it seems like.

Please stop me

[Barto]

What would be the % yield on your house if you rent it out? If in Zürich I suspect in terms of return it might make more sense economically to sell it. Property is a diversification from stocks though

[Giff]

Yield is crap, something like 3.5% gross. But still, much more than what I pay in interests and so far there has been appreciation on the property value, plus I like to keep some 30% of my NW in real estate for diversification. There is also high taxes to be paid on the profit if I sold, but that could be avoided if I buy something else (I think of equal or higher value).

Anyway, since I wrote the above post I decided that I should not move to a rental flat NOW. I would at least need to finish some small renovations here (in order to be able to rent it out for a higher price) and get promoted at work, which would bring an order of magnitude more than the 12K I would save in taxes.

I might continue looking for buying opportunity though.

[baldur]

@Giff

I might continue looking for buying opportunity though.

If you decide to sell your house and buy a new one, current high prices should be “transparent” for you. My friends recently bought a new house as a forward sale with the date set a few months in advance. Then they sold their current house with another forward date sale, but as they needed to renovate the new one, they agreed with the new owners, that they will pay them the rent for a few months after agreed date, until they finish the renovation.

Just in case if you consider such an option too :).

[Wolverine]

@Giff

Moving would be painful, given the time I invested into fixing this place where I currently live. I would also lose the garden, which I enjoy and which produces a non-negligeable amount of fruit and vegetables. I would also lose the relationships I built over the years with the neighbours. Not to mention the loss of freedom of living in our own place, from which nobody can kick us out.

@Giff

But overall I find the idea crazy and possibly opening a hell of applications/rejections/moving/furnishing, i.e., headaches.

Mental health has its worth and preserving it has costs. Extra stress from work cost me 10K last year in poor personal negociations (couldn’t take the time/handle the extra stress) and various expenses I absolutely didn’t need but still made to quiet my mind at the time.

You seem all but convinced by your move. I’d make it a life project rather than a tax savings one. Looking is fine but I’d not pull the trigger until I’m convinced I’ll enjoy my new situation.

[Barto]

That yield is comparatively good. We are in Geneva and rent a house, rent is high over 4000 chf/m but yield is only about 2.6%. We are looking at buying to have the luxury of our own place but it would probably be detrimental to our wealth

[babyjag]

Similar situation here, we plan to move out to rent a place which fits our lifestyle better (kids growing up, need more space). However renting out our current primary residence won’t cover the new rental costs. But we are comfortable with it, as we anyway can’t afford to buy a nice 4.5 or 5.5 flat without pledging our pillars, or selling some assets. I am not even mentioning the affordability of a house in Zurich.

You have a house with a garden in Zurich and this is litteraly a jewel, I wouldn’t sell unless you need to. Theoretically you can come back in your house whenever you want, should you be unhappy with the rental. Despite the hurdles, seems that it will make your family life easier.
So I can’t agree more with @Wolverine when saying “make it rather a life project than a tax saving one”.

You might be well aware of that, I am nonetheless mentioning that for other readers: if you rent out your primary residence your bank might ask you to amortize up to 15% (on top of the 20% equity). And eventually paying back your 2nd pillar if you used it as leverage.

Good luck!

[Giff]

@Barto

That yield is comparatively good. We are in Geneva and rent a house, rent is high over 4000 chf/m but yield is only about 2.6%. We are looking at buying to have the luxury of our own place but it would probably be detrimental to our wealth

Actually now that I think about it, I only put down 25% of the purchase price so my gross yield would be more like 12%.

[Giff]

@babyjag

without pledging our pillars,

Why would that be a problem?

@babyjag

You have a house with a garden in Zurich and this is litteraly a jewel, I wouldn’t sell unless you need to.

Yes, the pandemic probably helped making such properties more valuable. I would probably not even sell if (or when) I move abroad (always an option on the table, which would mean I could be FIREd already or almost).

[Barto]

Yes, leverage would boost your return on renting it out if the interest rate is lower than the rental yield.
When looking at this for myself my thinking was that I could lock in a low, long term interest rate but it would not completely eliminate the interest rate risk since if rates go up this would impact the property value. Current property values are supported by record all time low interest rates

[babyjag]

@Giff

Why would that be a problem?

not a problem per se, just that we wish to keep our 2nd pillars as obligations in our net worth for diversification reasons (and to sleep better). Or to have the same amount of cash available, shall we need to indeed pay back the 2nd pillar quickly. So I’d rather keep the 2nd pillar and not leverage it.