Hello everyone,
My wife and I are considering purchasing a 2.5-room apartment as an investment. Both of us are 35 years old and have traditionally been risk-averse. While we’ve started investing gradually in stocks, real estate seems like a safer and more appealing option for us.
We live in the suburbs near Fribourg, where new buildings are rapidly being built. According to promotional websites, 2.5-room apartments are often the first to be sold. Additionally, data from the Real Estate Observatory indicates a low and declining vacancy rate (Freiburg | Immolab-fr).
We’re exploring the possibility of buying a 60m2 2.5-room apartment in a new eco-friendly neighborhood for approximately 500,000 CHF. Although it’s a significant investment, with a down payment of around 20-30%, we anticipate achieving an annual return on investment of 2-3%.
Do you have any experience in investing in with small apartments? Is it (still) a good investment from your point of view?
Thanks a lot for your help!
Main thing is to look at what the monthly costs are for running an apartment.
I’ve looked at apartments to buy, which on paper were a good deal at maybe 500k, but when I looked at the cost, I’d have to pay 1’400 PER MONTH in various costs meaning for a few hundred extra per month, I could rent an apartment instead.
I would ask myself if an ROI slightly above the national bank’s target inflation rate of 2% is clever. Then I would factor in the hassle of managing tenants and the cost of illiquid capital. On the positive side, the demand for housing should remain high as Switzerland goes towards a 10-million-population.
Is there any reason why you don’t get an apartment for yourselves with the option of renting it out when your circumstances change? That way you could reap the benefits of a lower down payment to the bank and paying rent into your own pockets
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Thanks for your answer.
We already bought a 4.5 rooms apartment for us in the same area.
The ROI is not high but probably safer than stocks. The 2-3% is only based on the rent. Selling the unit might increase this %.
In our case, we already have our own apartment. Our costs are lower than if we would have rent it 
Is it already paid off? If not, would it make sense to pay off the mortgage before getting even more real estate exposure?
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The national bank’s target inflation rate is 0-2%, not 2%. And most years of the last two decades were below 2%.
https://www.statista.com/statistics/261381/inflation-rate-of-switzerland/
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I prefer stocks because I dont pay taxes on most of the earnings. I prefer to have 5%-ish tax free with 4 times a year 15 minutes of work although with higher risk than 2-3% before taxes and a side job as Wohnungsverwaltung.
But you need to find for yourself which investments let you sleep well in times of volatile markets.
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Personally I would second this, though you would have to calculate the exact benefit, accounting for taxes, mortgage interest, and the returns you could earn elsewhere. Of course, that would be putting all your eggs in one basket, but at least it’s the basket you live in, which means whatever you save compared to renting counts towards your returns.
In any case, if you are already pretty heavily exposed to the Fribourg property market, adding additional exposure to that asset class is risky, from a financial point of view. If you want/need to go all in on real estate, then perhaps buying the second apartment in another city/canton could be a way to diversify at least a bit.
Bear in mind that there are relatively safe alternatives that can yield similar returns to renting out a property. The most favourable 10-year medium-term notes still have 1.5% interest p.a. But of course, there is no possibility of a capital gain.
Thank you for your opinion @Daniel.
When it comes to invest in Real Estate, would you then personally prefer a REIT?
When looking at the price evolution of condominium ownership, the upward trend is ongoing, and volatility remains low. Obviously, this performance cannot be compared to a World Stock ETF or similar, but worth mentioning.
Would you personally prefer REIT funds for example? @ChickenFat
I would, personally, consider a diversified real estate fund to be a much less risky investment, especially if one already has a large direct real estate position in their portfolio (e.g. a person owns their own home) . Of course, with the lower risk comes lower potential returns. But in exchange you get a completely passive investment with a low risk of long-term loss.