Real Estate - CH/FR/CA

Hi everyone,

We’ve been living in Switzerland (Vaud) for almost 5 years now, and have started to save for a few years (150k net worth). We’re a family of 4, and would like to buy a home in Switzerland. Our family income isn’t too high either (less than 100k/year).

Sadly, based on some research, this doesn’t appear possible unless we move to Jura or Valais. Even then, the cost of the mortgage alone would take a long time to pay off, and then once we do, there’s that Swiss law whereby the yearly rental value of the home would be added to our taxable income forever.

We’ve considered purchasing an appartment as well, but the average price is 500k-700k in Vaud/Fribourg, which will also no doubt include countless “condo fees” and a lack of space & privacy, so we’re not too happy about that option.

My wife and I also have French & Canadian Citizenship. We’ve considered potentially buying a house in France, but the tax situation there seems quite unfair.

Canada is the main other alternative for us at the moment. The houses aren’t necessarily cheap, and the weather is awful 40% of the time, but the tax situation is significantly better than France (in my opinion) as there’s no Inheritance tax, no Capital Gains tax on real estate, RRSP/TFSAs (equivalent of 2nd & 3rd pillars), and the ability to purchase US ETFs easily.

What do you think of our situation? Is this a situation you are also facing yourself?

We just don’t want to be paying rent (ie. Someone else’s mortgage) for the rest of our life. I know this is the norm in Switzerland, and it’s great for some who want more flexibility, but it’s not for everyone.

Thank you all very much for your help!

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You are either paying rent to someone else, or “to yourself”.
Rule of thumb (maybe not globally though) is to compare the yearly rent to 5% of that specific RE’s worth.
Here is a great pod episode on how to approach what “makes sense”.
With 150k net worth, I don’t think it does economically at least.

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Hi tophat,

Thinking about Canada myself, I’m interested in following your decision process.

There’s many other factors to take into account when considering situations as different as Canada (where?), France (and commuting?) and Switzerland. What kind of job you can perform, as you outline, the weather, social activities, political climate, closeness to family/friends, educational system, healthcare, as you outline, taxes and general quality of life. I’d not let homeownership vs renting be the deciding factor for such life altering choices.

Jura and Valais have some nice places that may be worth investigating if you can live with the commute or find a new job there.

There are other advantages to renting. I view it as freeing capital (no funds to tie in the home except for the deposit), which can be invested in other assets (stocks, for example) and letting the trouble of finding solutions to the house problems to the landlord (there’s something to be said for dealing with broken appliances by simply calling the landlord/real estate agency and letting them deal with it). The drawback, for me, is a lack of freedom with regards to what I can do in the home (want to invest in energy efficient measures, a better kitchen or just change the colour of the tiles? Tough luck).

All in all, this seems to me like a psychological conundrum more than a financial one, as is. What’s your partner’s point of view on this situation?

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Getting your own home can work out cheaper than renting, but it’s important to be realistic about costs and potential savings.

Maintenance and renovation will likely be your biggest expenses. Its good to familiarize yourself with prices charged by Swiss craftsmen before buying a home here. If the kitchen needs an upgrade, count on 20-30k. If your furnace can’t keep up with new CO2 rules, be ready to pay up to 50k for a new one. Then there’s imputed rent, property tax, mandatory insurance, etc. From what I’ve seen, owning a house in Switzerland can be more trouble than the possible rental savings justify. My dad, for example, was actually relieved when he sold his house here.

There are some towns in the mountains which offer housing subsidies to attract families. If you love the mountains and that setup works for your family, then that could be a realistic option. If you pay 200-300k for the home, your mortgage payments would be much lower than rent and you can easily save for maintenance costs.

Personally, I’d see more value for money in Canada. That would be my choice, were I in your shoes.

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Thanks everyone for the great ideas so far!

I work in IT, and can potentially work remote (if I wanted to). I’m from Canada originally, so I know the systems and taxes quite well. I’m clearly biased though. In Canada, it’s normal to have a 200m2 house with 500m2 of land, garage for your car for maybe 450,000chf.

The income tax brackets are similar to France (30-40% of your salary), but the investment-related taxes are less harsh.

Yes, you’re responsible for fixing your roof, buying appliances, and all other maintenance, but I actually look forward to that as a learning experience. I’d prefer spending my weekend fixing up my house or planting in my garden rather than travelling. That’s just my opinion though!

Currently we’re in a 2-bedroom apartment. 100 year-old building. No elevator, shared laundry room, no bike parking… but yes, I acknowledge it’s nice having my kitchen appliances replaced for free if they break.

However, i’m currently paying a lot for rent, forever. As soon as I buy a house, i’m only paying the mortgage until it’s done, at which point I then save more net income every month to use for investments, etc.

Right now, the choice seems to be:

  • Buy a house in Canada or France (Frontalier or not)
  • Buy an apartment in Switzerland
  • Rent in Switzerland forever

In Switzerland (perhaps it is different in FR or CA) mortgages are expected to be renewed indefinitely, so basically you pay the mandatory 20% and rent the rest to the bank. Since rates are very low, the mortgage interest is attractive compared to a normal rent, but you need to assume it will stay like this forever. If rates go from 1% to 2% (still very low), it doubles your payment. Another issue with ultra low rates is that it pushes prices higher and higher - except in the regions you mention, and even there, you begin to see some price movements…

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And how much are you paying in opportunity costs?
I.e. for the 20% downpayment that can do nothing but “sit there”?
As @Wolverine and @Daniel mentioned, there are much more factors to consider than just “monthly mortgage payment vs. the rent”.

Check the episode above when you find some time (you can skip the first 10-15 minutes which are not strictly on topic).

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+1

Seeing paying rent as paying someone else’s mortgage is pretty bogus, what you’re really paying for is housing.

Otherwise we could use the same argument, that instead of paying shops for storing/selling things to you, we should instead own a store, etc. It’s really the same logic, instead we have someone else tie up the capital and provide housing (for a cost), then the question is really whether it makes sense for you to tie up the capital in RE instead of other investments.

There are of course other factors (e.g. government might give tax benefits, the main reason for that is that for many people a mortgage is a forced saving plan, without it they wouldn’t save money, but it’s not really the case in Switzerland).

Also when you’re retired, owning your home is a pretty good hedge (since you’re not working you’d be exposed to RE inflation, while if you own it you’d follow the market, whether up or down and cover a good 30% of your cost of living protected from market change).

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Thanks everyone. I did just manage to watch most of the Ben Felix video. I understand the concept of opportunity cost, and I know that by investing 150k in a house, that’s 150k that I will no longer be investing in ETFs. I know if I just kept the 150k in ETFs instead, it would compound to a very high figure in the next 30 years. Probably enough where I could then live off the 4% rule in Canada for retirement easily.

However, there’s a reason I added this to the “Life Hacking” category instead of the Investment categories - I’m not making this decision purely for financial reasons. It’s more for “Quality of Life” reasons. Similar to how Ben decided to buy a house as well, even though he added several reasons why it may not be the most ideal decision.

I think I phrased my question wrong at the beginning of this thread. Instead of asking, from a Financial perspective, which option is best, instead I should ask:

As members of the MP Community, what are your plans (short-term & long-term) in terms of housing in CH or elsewhere? Are you ok renting? Why or why not?

I know in the short term that just renting an appartment & working full time in CH is the fastest way to get to financial independence, but it’s not the only way

I’ve bought my own apartment for cost saving reasons. Spent 210k (at 850k price) which according to the re-evaluated value of my apartment are worth 420k right now (at 1.1M evaluation). Not only do I save on rental cost (effectively paying around 900 CHF instead of 2800 CHF for a comparable apartment in this location) but I also grew my invested capital.

Perhaps a note for some readers who are not aware: prices can also go in the other direction. If you have a -20% reevaluation and only 20% money down, not only the 20% are gone but the bank may ask for a special amortization to reduce the debt.

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We bought a house, in Zurich City, back in 2013. Lots of people told us we were crazy, we bought ‘at the top of the market’, ‘opportunity loss’, ‘hassle’ etc. We bought it for pure quality of live reasons – which we definitely experienced, and still experience every single day.

Financially speaking, we put 100k down, and pledged another 100k – the rest is mortage. We pay 666 Swiss Mountain Dollars per month for interests on the mortage; Eigenmietwert & deductions cancel eachother out for now with regards to taxes. As planned, the mortage paid for a new kitchen, Fernwarme and new isolation. So, almost embarassingly, we live in a 150 m2 place in Zurich with total costs including energy, electricity and water being less than 1000 CHF/month.

The area seems to be quite in demand, we got two unsolicited offers on our place this spring, one without an amount, the other with an offer of twice price we paid (including improvements). We’re not interested in selling, though I realize that the oppotunity cost of that are immense (close to 1M after taxes).

Before buying, we rented in a Genossenshaft, which was not expensive compared to the commercial market, but we paid more than twice as much for less space and much less freedom.

We did most interior, and some of the exterior improvements and painting ourselves, which we enjoyed more than I had expected.

So, for us, both from the financial the the living quality perspective it was defintely a good decision.

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I bought an apartment 7 years ago and now I have rented and move to a rent apartment in another area.
Mainly I bought as MrCheese mention to save cost. I had the money and I save a lot of on the rental flat (even the calculation from Mr Cheese is not really accurate. )
Also as the prices have gone up quite a lot not sure if make sense to pay the down payment and monthly savings with the down payment invested in the market

To be precise, it was a good outcome.
You shouldn’t judge the quality of the decision on that. :slight_smile:
That is - financially. I am sure it has more of an impact quality of life-wise. :muscle:

Happy it worked out for you!
It probably has for many in the last decade or so.

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A great outcome on your investment!

But would it be wise to expect the same scenario to repeat in the next 10 years? Can real estate price double again in the Zürich area? I seriously doubt that.

The prices have somehow have to be connected to the rental yield and people salaries. With the rock bottom interest rates, I can’t see where there could be much upside left… High prices disqualifies even the most desperate retail buyers these days.

Having said that I don’t see why the pressure on prices in the Zurich region would be released any time soon so maybe real estate remains a safe investment in this region.

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I think in the case of the store, the more suitable analogy would be shopping at a grocery store as opposed to growing your own food. The problem is that in Switzerland, and probably many other developed countries, you never really “own” your home per se. In most cantons you still have to pay property tax. Then there’s the imputed income. If its a leasehold, which are quite common in Switzerland, there is the ground rent. There’s the mandatory buildings insurance, etc. etc. So it becomes more of a question of which “rent” is lower.
This calculator provides a good first point of reference: Home Rent or Buy Calculator - moneyland.ch
But you have to account for taxes, possible ground rent, insurance, etc. on top. If you buy an older house you will want to add a good markup for maintenance and renovation.
In Switzerland, buying a home is a major cause of personal bankruptcy, and I believe the reason for that is that many people do not account for all of the costs of owning a home, so they buy when they really cannot afford to.
Of course, if you have plenty of wealth and want to use a mortgage to offset it for tax purposes, that’s a whole other ballgame.

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I know that’d be too easy but does any of you have a quick rule of thumb for that calculation?

Because in @MrCheese 's case this clearly does not apply: the rule says that anything above 670k would’ve been a bad idea.

Again, hindsight is a b****. :slight_smile:
Key is (as well as it’s hard) to make a right decision at the time with best available info.
And accept it still might end up badly in the end. :smiley:

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I do not really agree on that figure. But also nt on the figures of @MrCheese

In order to do a more real calculation, rent (including nebenkosten) = renovation budget (1% property cost), mortgage cost, amortization, nebenkosten + what you pay to taxes in rent (I do not remember the name)

Then we start to see that the cost at the actual interest rates looks quite good for quite a lot of cases, but I do not expect this low rates forever.

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I have heard of the 4%, or 25x calculation for Swiss real estate. Multiply the yearly rental income by 25, if the resulting number is higher than the sell price, it might be a good idea to buy.

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