Investment property

By investment property, we are talking about any property bought with the purpose of being leased, whether it is a house, a single family unit, or a multi unit.

Finding the right investment property

The goal is to find a property with the best profitability.

An easy way to grossly estimate the attractiveness, and therefore look further into the investment, is the following :

Property well located (center of a large city, for exemple), expected gross income 4% : this means that for a purchase price of CHF 1 mio, the buyer will want to generate at least CHF 40k per year in leasing revenue

Financing an investment property

The loan obtainable for the purchase of an investment property will play a significant role on your equity return, which ultimately should be the main critieria in deciding to buy or not.

According to the ASB (Association Suisse des Banquiers) 2020 new guidelines, for a investment property, the buyer should come up with a minimum down payment representing 25% of the purchase price (not including the closing costs), and pay the 2nd rank in a span of 10 years (article related : Principal (or amortization)). We will still be able to find mortgage providers willing to finance your acquisition with a down payment of 20% (not including the closing costs), but for the sake of the exemple, we will apply the ASB guidelines :

Purchase price : CHF 1 mio

Down payment : CHF 250’000.- (25%)

Closing costs : CHF 50’000.- (5%)

Loan : CHF 750’000.-

Principal (amortization) : CHF 8’400.- per year

Loan interest : 2%

Annual net renting income : CHF 50’000.-

Annual owner fees : CHF 8’000.-

Marginal tax rate : 35%

Annual gross return : CHF 50k (renting income) – CHF 8k (owner fees) – CHF 15k (interest) = CHF 27K

Annual gross return on equity : CHF 27k / CHF 300k = 9%

Annual net return (after tax) : CHF 27k – 35% = CHF 17’550.-

Annual net return on equity : CHF 17’550.- / CHF 300k = 5.85%

Annual disposable cash (factoring the payment of the principal) : 17’550.- – CHF 8’400.- = CHF 9’150.-