Where to park money for buying real estate?


#1

Hello,

imagine that you want to buy an apartment/house soon. Soon meaning - in few months/years, depending when you’ll find suitable offer. This means that you have to have up to 20% available almost immediately and it’s hard to say what’s your horizon for investing this money (apart from that is “short”).

What would be the best place/idea to park this money? In a way that you at least don’t loose (no or minimal fees) or even better, you can earn something out of it? Some savings accounts seem to be an obvious option, but don’t forget we are talking here about amount rather bigger than 100k and many offers are limited to even lower amounts…

Can you recommend some nice options currently available?

Cheers


#2

Hey there baldur

I think for that timeframe there won’t be anything you can do besides a savings account. Everything else is just too risky if you need to take the money out soon.

Consider this. Even if you get 3% for your 100k somewhere, that’s still only 3000.- Not worth the risk imo. Maybe someone else can chime in, but I really can’t think of anything else.


#3

Hello,

thanks for replying. I was also “afraid” that it’s the only option. But then, there is a question about the best saving account for this…

I had also another idea - putting the money into 3rd + 2nd pillar, to lower the taxes (+gain some interest?), but I don’t know how to calculate real gain, in case for example when you put it in year X and then buy a property using those funds in year X+1.


#4

Best saving account I know is Raiffaisen Member. 0.015 till 100k then 0.01.
OR
Coop Depositenkasse if you trust a non bank. (0.25 or more.)
https://www.coop.ch/content/depositenkasse/de.html


#5

So for second pillar I think you need a “gap” to be able to pay in, ie. your provider has to let you buy into the second pillar.

third pillar also isn’t really an option because the max contribution limit is 6826.- per year. Sure you could somehow circumvent that limit by opening multiple accounts at multiple institutions, but only 6826 counts to reducing taxes.

The best 3rd pillar rate I could find is 0.6%, so again imo not worth the effort


#6

Don’t try to open multiple accounts. A friend of mine did it by mistake and got into (small) troubles.


#7

Hi,

this possibility I have, due to the fact (I think) that I’m working in Switzerland only since several years, so I have much less money than people working their whole life here.

Anyone knows how to do the calculation?

For example with below numbers for simplicity:

  1. Year X - 100 kCHF income.
  2. Year X - put 100 kCHF in 2nd pillar - so no income, no income taxes (?)
  3. Year X+1 - buy a property, also using those 100 kCHF from 2nd pillar (let’s say it’s 10% of the value)

What are the costs, implications etc? Is this 100 kCHF considered as income? Does the money parked in 2nd pillar account for one year gives you any interest etc?


#8

I think you have to wait at least 3 years before taking back money from 2nd pillar so that is not an option.


#9

I see, I was not aware about it. Indeed, if it is the case, it’s not an option at all ;). Thanks!


#10

You cannot cash out before 5 years have passed, but you can pledge part of your Pillar 2a as collateral for your mortgage. This way you can reap both the tax advantage AND have enough money to buy property.


#11

That sounds interesting… Does it mean that I don’t have to take the money out and that the bank will credit 90% of the property, blocking 10% on the 2nd pillar account? Is it possible in all the banks or only some?


#12

https://www.homegate.ch/mortgages/financing-your-own-home

“As much as 10 per cent of your equity participation can come from a company pension or a Pillar 2 retirement plan. An additional 10 per cent should be actual equity capital from”.

Banks prefer cash over a pledge, which is obvious :-), but it should be possible.


#13

Many thanks! So, if we take below example data:

10 years horizon
100 kCHF income in year X
100 kCHF paid into 2nd pillar in year X
0.5% interest rate in 2nd pilllar

During those 10 years we should get +5000 CHF thanks to interest rate, then additional gain is no income tax in year X.

But according to the article, pledging means that our mortgage is bigger, so we pay more interests and need to amortize more. UBS calculator shows:

Property price: 1 mCHF
Cash: 100 kCHF
Pledging: 100 kCHF from 2nd pillar
Mortgage: 900 kCHF
Interest rate: 1.5%

Per year (interest + amortization): 29064 CHF. With mortgage 800 kCHF (no pledging, 200 kCHF paid in cash): 20 892 CHF. In 10 years you pay 81 720 CHF more…

Doesn’t seem to make sense, even if we would have the same interest rate (1.5%) on 2nd pillar…

Unless my quick and dirty calculation is wrong ;).


#14

I believe the mortgage in this case is 800k, not 900k. Or am I missing something?


#15

Hi Baldur,

You calculation is partially correct, but you should account the fact that your 2nd pillar might provide you a return of more than 1% per year depending on how your pension fund is performing, i.e the financial markets are performing. Moreover, you should also account for the fact that the additionnal interests of the pledging solution are tax deductible.

There is also a good point in favor of pledging which is often forgotten: Your invalidity and death insurance coverage are still the same as prior to the home purchase. Taking its 2nd pillar out for financing a home purchase often results in a undercoverage from an insurance point of view. You might argue that this has also an economic value that you should account for :slight_smile:

I would be interested in the exact calculation, also taking into account the cost related to pledge, feel free to create an Excel calculation! :smiley:


#16

If I understood correctly below information from the webpage you provided, it should be 900k:

Cons of pledging collateral

  • Pillar 2: larger mortgage and thus higher interest payments compared to an early withdrawal. The pledged amount must be amortised by the time you retire.
  • Pillar 3a*: the mortgage loan increases by the pledged amount.

#17

I am not sure about this but I believe that the pledge basically allow you to finance your home purchase with more debt (90% instead of 80%) rather than qualify as equity. Which means that your mortgage will amount to CHF 900k instead of CHF 800k.


#18

I see. Then I was wrong, but perhaps not entirely.

Pay into Pillar 2 to use the tax advantage, take a part of mortgage as 5Y fixed and repay that part with Pillar 2 after 5 years. For as long as your mortgage rates are less than you pay in tax, it’s a win. Keep in mind there’s tax to pay on Pillar 2 withdrawal, but it’s significantly less than any marginal tax you may be paying now. And of course, it’s most cost effective to split Pillar 2 pay-ins over several years to get the most tax advantage (tax is not linear).


#19

Nice idea, thanks. My only concern is that recently I’ve heard an advice not to take the mortgage in different parts, because it’s a way in which banks tie you with them. Meaning that after agreed period, you have to refinance, but because the other part of the mortgage, possibly with different period is still there, you cannot change the bank to the one with better offer.


#20

That’s why you pay it back with Pillar 2 and have only one fixed expiration date which is cheap, because the bank wanted you as their client :-). BTW paying back a part of your mortgage may mean you no longer need to amortize, which will free additional monthly capital.