I will retire in 6 month, at the age of 62, and have actually 5 MCHF in stock and will receive a bit less than 2MCHF as lump sum from 2nd pillar. As safety measure I would like to diversify by buying a multifamily residential house with 50% financing by the lump sum of 2nd pillar and 50% mortgage (leverage 50%). I expect less return with real estate than with stock but with the actual situation who knows what will happen within the next two years. Do you have any first hand experience in a similar plan.
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Would it not be better to also consider Direct Real Estate Funds ? They give exposure to wider range of properties without need to be the landlord. They also have 25-30 % leverage
Of course only if this is about diversification.
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Do you already own your own home or are you renting?
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Do you have experience in real estate investment or are you going to YOLO a few million into it upon retirement with no prior experience?
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Do you really think that you can manage this type of investment? tenant, ect?
What about in 10, 20 years? Will you have all your mind to manage it?
If you are afraid no to have enough things to do during your retirement and this is your hobby project, why not? but as an investment, big doubtâŠ
Could you provide more info on how much do you plan to spend each month? Do you plan to give money to your kids, ect?
I am actually renting the place where I live mostly because I wanted to remain flexible and able to move in case of change of job location.
I already own a multi-family house (8 units) where >I have tenants. I have a managing company that cost 6% of the income. It is money well invested as I am unable to act as landlord due to travel for work and lack of experience in all the unexpected situations that can happen. The greatest job is to read the financial report of the manager.
I am also considering direct real estate found, they have several advantages like tax efficiency, liquidity, good location in big cities. I underestimated the dividend and it is finally not that bad and combined with the inflation of the building it could also be a viable solution.
People are mostly afraid by the landlord job. In fact this is not the biggest problem for me as I am convinced that you need a professional management office. The biggest problem in direct ownership is tax inefficiency: tax on change of owner, tax on capital gain when you sell, tax on inheritance if you want to transmit it to your children. With paper real estate all these aspects do not exist or are more easy to manage.
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Real estate fund sounds more viable. Since rental yields are about 3%, tacking on a 6% management charge means youâll be losing 3% each year.
I assume itâs 6% of the income, not of the investment.
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Yes! 6% of income.
Otherwise I would have left my job 30 years to be real estate manager.
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This.
Perhaps Iâm missing something but why take the pillar 2 as cash at all? Itâs not possible to take the annuity? That would have a good proportion of real estate in it anyway.
Taking in cash has some fiscal advantage. I would be taxed about 9% when I get it in cash but my marginal tax rate is 42% if I take the annuity.
The conversion rate for the anuity is also not glorious with 4.something in my age range. If you decide for the annuity you do not mind anymore what is behind (shares, estate, gold, bitcoin,âŠ) as your annuity is fixed and you are legally protected by any diminution of the annuity and the management of the pension will do its best effort not to be obliged to compensate for inflation.
Taking the cash and investing is a bit risky if this is your only source of income once retired. If you have several sources of income even before retirement (real estate, stock,âŠ) then taking the capital and investing makes is a good strategy to get the cash flow and protect the value of the investment.
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Given your situation, Iâd probably buy a nice but moderate place to live in and add the rest of 2nd pillar to investments in various equities.
- Eliminates cost of paying rent (admittedly, youâd perhaps fund e.g. 50% of the real estate purchase from your 2nd pillar so would still pay interest but thatâs super low)
- Youâre retiring so no longer need flexibility of location for work
- Good to have a fixed Swiss address so you can enjoy time in cheaper, sunny, pleasant locations but maintain your personal HQ in Switzerland with all the benefits (eg healthcare)
- If push comes to shove, you could always move to another location and rent your Swiss place out
That one multi-family house would already be more than enough concentrated risk for me.
Youâre in a good spot, your âproblemâ is a nice one to have:)
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Agree. Buy a home to live in and you hedge on RE without the hassle of being a landlord. On top of that after the law changes you can also live in it tax free. Buying without mortgage might give equivalent equity investment as 50% in a larger investment property.
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Taking it a step further, if this is not already the case, before retiring make sure you move to a town/canton where your taxes on wealth and on the 2nd pillar payout are low. I live in such a place - the difference can be phenomenal (my wife wanted to live elsewhere in Switzerland - all I had to do was show her the math and she said âOK, forget what I just saidâ).
This is even easier given you are renting.
Which canton do you live in? For pillar 2, thatâs a one-off item that you could plan around. Wealth tax can end up being expensive and create liabilities without a corresponding cash flow. Some people avoid income tax by preferring growth stocks over dividend payers.
Not owning a home is a valid a lifestyle choice. No matter the age, keeping the freedom of moving every couple years is great imo. Especially without children at home, while not owning lots of things.
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Donât disagree, but given the intention to invest in real estate, itâs a valid option to simply invest in your own home (with the option of renting it out depending on the scenario).
@PhilMongoose Nidwalden. I recall attending my first annual Gemeindeversammlung and the Gemeindeprasident stating explicitly: we have very low taxes and it is our intention to keep it that way forever. => applause! And still, the Gemeinde runs a multi-million CHF budget surplus⊠leading to people to complain about it and demanding further tax reductions (whereas Iâd be fine spending a bit more to enhance quality of life).
I do sometimes suspect that a lot of the real estate where I live doesnât have people actually living in it, but thatâs a different story.
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Did you move there specifically, or were you always based there?
I was based in another well known low-tax town/kanton which was a great place and my wife and I would have been perfectly happy to stay there but after years and years of trying to find a right home to buy and never finding it, we gave up. It was close to work and COVID time so we also stepped back and said: letâs buy a place where itâs great to live but without work location as a constraint given the increasing âwork from homeâ trend coupled with my expectation that Iâd eventually be terminated anyway.
From there, we mapped all of Switzerland (using some online tools) based on taxes - we did not want to have materially higher taxes than before (during that time I was fully employed and making so much each year with bonus and shares vesting that living in place A vs. B could really be a MAJOR net income difference) and preferred even slightly lower. That left us with only a few places to zoom in on for our house search which made it easier and then we were lucky to find the place which we ended up buying and thatâs worked out fine for us: a place with low taxes, high quality of life and house prices on the high side but not as insanely high as the town we lived before.
The downside is, weâre locked in due to the tax rates coupled with our assets/income. Iâve had conversations for some fun jobs abroad which were smaller than my previous position, and the tax burden would have been so brutal that Iâd essentially be working for free (and on top the hassle of moving) versus just being semi-retired where I am now in Switzerland. Itâs a nice problem to have, I guess.
My expectation is also to get a very substantial 2e Saule payout (no annuity) in due course and am happy to also have that while based where I am and with the easy tax treatment.
To put things in perspective, our neighbor is a former exec with a major Swiss multinational. For him, his place is only his pied-a-terre in CH while he spends most of the year in his REAL home in southern europe with ocean view, infinity pool, etc.. Weâre not in that league but happy nonetheless! 
Edit: Should add, we moved just in time. Right before my employment was terminated which resulted in a major payout. The tax benefit of the move was very substantial and weâre still experiencing that benefit every year! So, in case relevant for the original poster, given you have some time left before retiring, Iâd strongly suggest to take this lever of location into consideration. Youâd just need to relocate before 31st of December to have the full year be taxable in another kanton. For optics, probably smart to administratively / physically relocate a bit earlier.
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In my mind, I thought Nidwalden was in the middle of nowhere, but when I check on the map, itâs actually nicely located to both lakes and mountains. I know it is also a popular location for crypto startups.
I wonder whether some places like Beckenried loses a lot of sunshine due to being directly north of the mountain.
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