To buy or not to buy a property? That is the question!

Real Estate
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Dear Fellow Mustachian,

I apologize for starting a new thread, but I would like to focus on my personal situation. I am a 37-year-old male who has been living in Switzerland for six years. I was able to quickly transition from a B-Visa to a C-Permit due to my Spanish nationality. I earn a gross salary of approximately 160K, which includes a bonus, as an accounting manager. My base salary is 145K, and my company contributes 12% to the 2nd pillar while I contribute 6%, totaling 18%. We manage to save around 45%, including second pillar contributions. I have three children aged 8, 4, and 6 months.

My wife is currently receiving an unemployment salary of 2.6K gross per month and plans to return to work after this summer. She recently validated her studies in Switzerland, which will enable her to work in schools up to the Kantonal level. However, her salary may vary depending on the position (teacher assistant, main teacher) and the type of school (primary, secondary, or Kantonal). She would prefer a maximum workload of 60%, so itā€™s difficult to estimate her potential income at this moment.

Our current net worth is approximately 555K CHF, distributed as follows:

  • My 2nd pillar: ~149K with AXA (I received the minimum 1% this year)
  • My wifeā€™s 2nd pillar: ~9K (Vested account in VIAC earning less than 1% interest income)
  • My 3rd pillar: ~47K (VIAC Global 100 and Finpension 99% stocks)
  • My wifeā€™s 3rd pillar: ~21K (VIAC Global 100)
  • Stock market: ~314K (mainly VT)
  • Other assets: ~15K (primarily for emergencies and rental deposit)

We are currently renting a 4.5 room, 120 m2 apartment with a small terrace overlooking the Rhein. The apartment is in a prime location in Schaffhausen city and costs 1820 CHF per month, including Nebenkosten and two parking spaces. I mainly work from home so after the new born it is a bit small for all of us.

We are considering buying a property which is just 5-10 minutes from Schaffhausen. The property has a 300 m2 garden and 5.5 rooms in a 160 m2 space in a very nice location also by the Rhein. The asking price is 1,170,000 CHF, including parking. Similar properties are rented for around 2.6-2.8K CHF per month.

We had an initial meeting with Money Park, and it seems we can afford the property. However, we would have to withdraw the full amount from the 2nd pillar and contribute 170K in cash from our funds. This would require us to sell the majority of our VT shares. Additionally, we would have to pledge our 3rd pillars. The total down payment would be 327K, plus a ~66K 3rd pillar pledge. After this, our net worth would be primarily composed of ~60% real estate and ~40% stocks.

I understand that buying a property, especially in Switzerland, is often more of an emotional decision than a logical one. I am fond of the idea of FIRE, but buying a property and taking on a large mortgage could delay this goal. At the same time, my wife and I have always dreamed of having a large garden in a beautiful location where we can enjoy barbecues with our children and friends. We believe itā€™s important to find a balance: it doesnā€™t make sense to sacrifice our daily lives in the hope of achieving early FIRE. This is where Iā€™m strugglingā€¦ Perhaps it would be better to buy the property, enjoy the new space and garden while our children are still young, and adjust our FIRE plans accordingly.

The decision between choosing a SARON or fixed rate mortgage is also challenging. I appreciate all the comments on the other thread (Mortgage rates in Switzerland), but Iā€™m still unsure. I always thought I would choose a SARON mortgage if I bought a property, but now that the time has come, Iā€™m uncertain. I see a 5-year fixed rate at ~1.7% or a 2.28% SARON 3-month rate according to Money Park. It seems the market expects the SNB to lower the interest rate, so I might benefit from choosing SARON, but Iā€™m still unsure.

I change my mind every minute, oscillating between buying the property and maintaining our current lifestyle. Itā€™s a tough decision.

All my family lives in Spain, where the economic situation is vastly different. They lack financial education and are unable to save a single EUR at the end of the month, so I canā€™t discuss how things work in Switzerland with them. I need your advice. Iā€™m not even sure what to ask you. I just need your comments. I need someone to provide reasons for or against proceeding with this decision. Why should I or shouldnā€™t I do it? Please share your thoughts.

Thank you very much in advance!

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I donā€™t really have a ton to add but Iā€™d like to point out that this is a great ā€œasking for helpā€ post. Even if you donā€™t have a clearly defined answer (which is totally valid because sometimes knowing what to ask is already a problem), you did include a ton of details and data that is certainly valuable.

I would just ask the following, can you just include what would be the monthly mortgage that youā€™d pay in either scenario. That would make things easier for other people.

Lastly you are considering two outcomes which is to stay where you are or to buy that example house and move there but Iā€™m pretty sure that thereā€™s a third scenario. You can move out and rent such a house. It seems like it would be something that you can afford no? And also based on your post it seems like the decision should be between buying/renting the new house, not between buying vs staying where you are (because you mention that the house is getting small already).

Iā€™d guess most people will say that from an economically POV, and especially in Switzerland, renting that house and continuing to invest/staying invested is the play here, but Iā€™ll let someone else chime in with some math on that. But this doesnā€™t take into account the emotional side of the decision, which I understand and have myself, but this is something that only you can weigh.

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The mortgage for the property would be CHF 843K. With the current interest rate of about 2%, the monthly cost would be around CHF 1.4K. Adding to this the Nebenkosten of approximately CHF 1K, the total monthly cost comes to about CHF 2.4K. It have been just renovated (new kitchen, new bathrooms, new heating, and some other renovations) so we donā€™t expect too much maintenance cost next 10 years maybeā€¦

I used the buy-or-rent calculator from Money Land, assuming an annual property value increase of 0.7% (though Iā€™m unsure if this might be too high) and an investment yield rate of 4%. The results indicated that renting would be CHF 42K cheaper than buying over a span of 15 years. However, I believe the extra space and garden, especially with its location on the Rhein, could justify this cost.

Currently, Iā€™m considering two scenarios: either stay where we are or buy the property. A few months ago, there was a similar property in the same area that was rented for between CHF 2.6K and CHF 2.8K, but there are no such properties available at the moment.

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There is a great buy vs. rent calculator by @Julianek , who can give you some insights if itā€™s cheaper to buy or rent, including opportunity costs. Buying RE is often not only a financial decision, itā€™s just as much a lifestyle and emotional decision. Ask yourself if you see yourself living there for 15+ years, raising your kids and sending them to the local school?

Another aspect is that properties are increasingly difficult to find and that sounds like a pretty low price, if the home has been recently renovated (although Schaffhausen has lower prices than other regions). Who knows how long it will take for another opportunity to buy something you like will take.

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Is it a dream house that you would like to live in for the rest of your life?

If yes then consider buying it as an emotional decision.

If ā€œnoā€ I recommend to start looking for a house to rent as I think it is highly probable you will be better off financially with your current plan. The gross rental yield on the house is poor at 2.8%

A plus of renting is that we learned what we like and donā€™t like. We are glad we were outbid on other houses we tried to buy for >1M. And someone else takes care of all the repairsā€¦

(for big financial decisions like this, modeling 2 scenarios and the age I am likely to hit Financial Independence in each helps clarify my thinking. Having to work x more years as a result of a bad choice is soberingā€¦)

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If they ask for more than 20% equity, you failed their affordability check for 80% financing. Will you find a similar house in 1 or 2 years when your wife is working?
Either way, I would talk to 2-3 banks as they might calculate differently.

At least, you should have some 230k for a 20% downpayment and should think what to use, pillar 2, 3 or stocks before talking to the banks.

Keep in mind

  • you canā€™t withdraw the total pillar 2, but only max 10%
  • if you want to buy now or in the next years, I would have the downpayment available at little risk and not invested in stocks
  • for a new or renovated house, you wonā€™t need 1% Nebenkosten at first. Half of that will do. Cost for repairs or renovations will only pile up later

Regarding lifestyle, itā€™s 2 different questions in my opionion:

  • buy or rent?
  • 4-room appartment with balcon or 5 room house with garden?

If you work from home, with small kids and desire a garden, the second one would be easy to answer if you can afford it.
The first one is up to you, financially itā€™s likely the same in the long-run. Even after the downpayment, you are left with some assets in the market and lot of time to add more. And the downpayment remains an asset, itself.

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There are arguments for long durations and SARON. 5-year seems a foul compromise to me. For expected lower rates over decades and flexibility itā€™s SARON, for safety 10-year or more.

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This is something I can empathise with. I also have young kids and bought more house than would make sense financially. So you should consider it more ā€˜consumptionā€™ than ā€˜investmentā€™ and examine how much of it financially makes sense and whether the excess is ok for you to ā€˜spendā€™. In the end, we enjoy our money now or later, so we shouldnā€™t save for the sake of saving without purpose.

  • Buying an expensive house is a big financial decision and your wife earning and income will provide a good safety net. How certain is she that she will get a job?
  • Is the property a house? If so that is good. There are extra gotchas with buying apartments
  • I think the big thing is how likely are you to stay in Switzerland as buying property is a long term commitment
  • Second question is how secure are your jobs?
  • Lastly, if youā€™re interested in buying a property near Schaffhausen, I actually have one for sale. I can send you details if youā€™re interested.
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Thank you for your insightful comments! This is precisely the reason I asked for your input - thereā€™s a lot of knowledge among you all!

Based on the assessment from Money Park, it falls within the market range of 1.05 million to 1.25 million CHF

Indeed, I envision it as my dream home where I could happily spend the rest of my life

If my calculations are correct, it would be approximately five more years. However, this is where Iā€™m struggling. Would it be more beneficial to purchase the property now, relish the additional space and garden while our children are still young, and modify our FI plans as needed? The correct answer eludes me. I canā€™t help but wonder if Iā€™ll harbor regrets in the future, regardless of whether I choose to buy or not

I would say high. Thereā€™s a significant shortage of teachers throughout Kanton Schaffhausen, or in Switzerland. Moreover, she has already achieved a C1 level in German and is currently working towards C2. However, a C1 level is already sufficient

No, itā€™s a ground-floor apartment. There are only two neighbors above, spanning two floors, with a total of six neighbors - three on each side. The garden is subject to ā€˜BenĆ¼tzungsrechtā€™ (right of use). Built in 2007 and I said it have been fully renovated.

Our children are growing up here, so itā€™s highly likely that we will continue to reside here to be with them

Itā€™s challenging to predict. As an accounting manager, there are always job openings with similar levels of compensation, so Iā€™m not concerned. However, itā€™s certainly a factor to consider. I wish I had a definitive answer. My company is primarily based in Switzerland for tax benefits, so the greater risk would be if they suddenly decided to relocate to another country. Theyā€™ve been here for over 20 years, but the future is uncertain

You are right

Iā€™m uncertainā€¦ itā€™s perfect for us, situated in an ideal location by the Rhein where I love to swim. It has a garden and is quite spacious. Plus, there are many children of similar ages to ours in the vicinity.

It is 700 CHF/month + 21K by 2030 for some renovationsā€¦ so we expect ~1K/month

I still find it challenging to fully grasp how mortgages function in Switzerland, which is why I enlisted the services of Money Park. In theory, they should be well-versed in all aspects. However, after reading this, Iā€™m left wondering how itā€™s possible that they fully considered my wifeā€™s and my second pillar, given that 10% of 1,170,000 CHF is 117,000 CHF, and they factored in a withdrawal of 157,000 CHF. It would significantly alter the situation, as I would need to liquidate an additional 40K from my stock holdings to cover the amount that Iā€™m unable to withdraw from the second pillar

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You can withdraw as much second pillar as you want. However, at least 10% of the cost of the appartment needs to come from other sources than pillar 2 (so taxable money, pillar 3 or home equity coming from the bank evaluating the value of the appartment higher than its actual cost, for example).

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Right, that was poorly worded. Butā€¦

ā€¦ why?
Thereā€™s enough assets for a downpayment. Liquidate them, if thatā€™s what you want.

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Normally you pay 20% deposit of which half (10%) needs to be non-pillar-2 funds.

So if you need a deposit of 234k. Youā€™ll need 117k in cash. The other 117k you can take from pillar 2 if you want.

Youā€™ll also need to meet the bankā€™s affordability criteria. So without enough income, you might need to pay a bigger deposit.

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I think you mean 50% of that (i.e. half of 20%, 10% of the total).

Enough said then? I mean definitely still do your due diligence and have a look at other similar places but if you can afford it with minor changes/risk to your FI goals then Iā€™d seriously consider it.

I donā€™t know about anything else but Iā€™m pursuing FI as a means to increase my quality of life. Sometimes that means putting other things ahead of FI (like buying your dream house). Iā€™m not looking to slave away the best years of my life and then retire early but with no energy to take advantage of it nor memories to enjoy.

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I think financially this works out, even though Iā€™m not a big fan of the idea to use any pillars, as that is for me a sign that people overstretch their financial limits. You give up something on your pension level, to enjoy life today. This is a little bit Yolo, for me at least. Of course there are good reasons why to live now at the best, but when you see this you still struggle to accept. Maybe it is an evolution thing, mixed with culture, when 20k years ago people had more scarce resources to survive.

But I would rather focus on the emotional part. Why do you believe that in a garden, doing a barbecue with children and friends are so romantic, is so ideal picture in your brain?
Then imagine that you have continued fights with you neighbours about sound level, or they have some nasty habbits.

In case you can feel yourself much better with people if the surroundings are ideal for you, and you can be calm even if you just put a big bet on the house and the neighbours are bad, I think you are ready to buy the house.

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Might be.
But on the other hand itā€™s actually a more optimal way to sort out the downpayment, reducing the opportunity cost by not having to pull everything out into cash.

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Hi,
thanks for sharing your situation and all the comments. I m somewhat in a similar situation.

45% savings rate is great! I m wondering how you manage that with 3 kids!?

Imagine a moment you would do all decisions based on financials and with FIRE in mind and then comes the day when your FIRE. In your 50es or i donā€™t know. Do you have it clear in your mind what you want to do with your life then? How old will the kids then be? They might not have so much time to spend with you then? You might get bored of not working after 2-3 years?
I m thinking better enjoy the life when your still ā€œyoungerā€.

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I couldnā€™t agree more. At this point in my life, I find myself preferring to concentrate on the present, where I can exert a significant degree of control, rather than dwelling on an uncertain future that lies beyond my control.

I plan to continue saving, albeit possibly at a lower rate than currently. I acknowledge that I will forfeit the compound interest on the 170K that I will need to liquidate, but I will still keep +150K invested + 3rd pillar that would pledge. However, I believe I am prepared to accept this cost. My monthly budget will be minimally impacted. I anticipate a salary increase of 2-3% starting from March, which will partially offset the cost increase associated with purchasing the property (from the current 2K CHF to approximately 2.5K CHF). And it will take another 5-6 years to reach same balance on my pension fund under the same work conditions.

Itā€™s not just this. The property also offers an additional room or extra 40m2. The building is relatively modern and the apartment comes with a newly renovated kitchen equipped with new appliances, two refurbished bathrooms, new flooring, and new doors. It would feel as if we were almost the first owners. We are particularly like the apartmentā€™s location. After nearly 20 years of renting, which began when I was 18 and starting university, Iā€™m ready for a change. I yearn for a place of my own where I can engage in activities that Iā€™ve been holding back on while renting.

This includes contributions to the 2nd pillar, 32% when excluding it. Shopping for groceries in Germany certainly helps!

Those are excellent questions, and Iā€™ve been pondering over the same ones in recent weeks. If I were to forego the property purchase, I believe I could achieve FIRE before turning 50, possibly in my hometown in Spain. Letā€™s assume that at age 50, my children would be 21, 17, and 13 years old. So yes, itā€™s not a straightforward decisionā€¦ Itā€™s indeed challenging to answer

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Is it, really? Based on your other answers I read, it sounds quite straightforward what you want.

To me, the main concern to FIRE in Spain at age 50 wouldnā€™t be that house you might buy (and sell later), but the children at that age.

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great thread. Directly replying to the original post, for me itā€™s a no brainer to go for buy instead of rent. Buying the house to me is not the goal. Buying the house is the method to get leverage and to get/save income.

And at the same time, you need to be careful about choosing the property to buy. Make sure

  1. the house is attractive in the rental market
  2. you would like to rent it yourselves
  3. you get at least 2/3 of the price as mortgage.

In the end, it is just moving investment from stocks to house and rent a new place. If you donā€™t like to live there, rent it out and move to a new place. If you find new investment opportunity, sell it and invest in the new opportunity. You are not tied to it.

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I would like to ask you some questions regarding the type of property you are planning to buy. I will the financials aside, since they are specific to the region (I am located in the Berner Oberland), so no idea about the prices around ZĆ¼rich:

  • Have you met the prospective neighbours? Are there families with children around?
  • Are there regulations in place regarding the allowed usage of the garden? Are you explicitly allowed to grill (BBQ) as often as you want? Are the upstairs neighbours going to complain?
  • Are you sure the upstairs neighbours are quiet people, unless the sound-proofing is of excellent quality, which is not often the case in Switzerland?
  • Have you carefully studied the financials of the Wohnung? There should be some budget for future renovations. You are expected to contribute to this budget. You are probably aware of all this (since you mentioned the Nebenkosten).

I totally get the emotional aspect of buying a house. We also bought a house based on ā€œGefĆ¼hlā€ and because we hated living in our last apartment.

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