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Switzerland: How buying real-estate can kill you financially/reasons for stocks

99 points by s3nnyy 9y ago

alecco 9y ago
Buy a small place enough to live. If you take a mortgage pay it as soon as possible to be debt-free. Then invest in diverse things with best return while being tax smart. Perhaps barbell method.
- davidgay 9y ago
  My understanding is that's not a wise Swiss-property investment strategy (the subject of this article after all...). There, the combination of no capital gain taxes, a tax on wealth, very-low-and-stable interest rates means that one should take an interest-only-mortgage and invest what would have otherwise been your principal payments...
  - s3nnyy 9y ago
    Tax on wealth is really low unless you have millions.
  - Retozi 9y ago
    This is a quite common myth that is factually wrong. It's the main way for a private wealth advisors to talk somebody into a unecessary mortage. The interest rate on mortages is always higher compared to the interest rate on leverage for stock (by using the stock itself as collateral). You can get close to the yield on swiss confederation bonds if you buy well priced, leveraged ETFs. Obviously that interest rate is as stable if not more stable than the interest rates on mortages. Please DO NOT buy stocks with money from a mortage. you're just giving up at least 1% yield.
    - pjc50 9y ago
      > leverage for stock Please note that with leverage (stocks or real estate) is is possible to lose more money than you invest.
- ryanbertrand 9y ago
  Switzerland makes home owners pay taxes as if they rented the house out for 12 months each year. This could add a nice chunk to your net cost of owning.
  - corford 9y ago
    Which I guess most landlords would simply pass on to the tenants?
    - petre 9y ago
      It's rent adjusted. So if everyone passes it on to the tennants they end up paying more tax.
    - branchless 9y ago
      Nope, that's not how prices are set. https://www.quora.com/How-does-a-land-value-tax-not-create-deadweight-losses https://www.quora.com/How-does-a-land-value-tax-not-create-d...
    - tonfa 9y ago
      If they rent it they pay income tax anyway (or rather the company that owns the place does). The "virtual rent" added to income is for people who own the place where they live. Switzerland is not very home ownership friendly, at least there are very little tax incentives for it (personally I'd rather have people invest their wealth into productive things rather than real estate, so I find it good). In large cities most places are owned by banks/insurances/other real estate companies and rented out.
      - gnaritas 9y ago
        I wouldn't call not giving special privileges to home owners over renters unfriendly, I'd call it neutral and fair.
        jacalata 9y ago
        They didn't say it was unfriendly, they said it was not friendly. So, neutral.
Kenji 9y ago
Houses are bad investments due to foreign millionaires inflating real-estate for the rest of us. Is it really foreign millionaires or is it local billionaires - namely the banks throwing money with ridiculously low interest rates at everyone - who inflate the house prices?
NiklasMort 9y ago
rich people problems
marklit 9y ago
I would suspect a few of these wealthy foreigners buying property are trying to make sure there wealth is tied up in something their home state cannot take away ownership of. If it depreciates a bit, it's probably fine. 97% of something is better than nothing. I also suspect they have nice stock portfolios already as well.
- cgb223 9y ago
  Makes sense A lot of Chinese nationals are buying property in the states and Canada in order to accomplish the same thing I wonder how this kind of cash parking affects property values?
  - sulam 9y ago
    You wonder? It's easy to guess. They go up. A lot. But you don't have to guess, just look at property values for anything at all nice in Vancouver. Practically the whole city could not afford to buy a house there on their current income.
  - ikeyany 9y ago
    > I wonder how this kind of cash parking affects property values? Go look at housing prices in every city on the west coast.
  - minikomi 9y ago
    Is it possible to create "real estate" which is basically geared towards this kind of thing? Eg. a large vertical block of tiny, tiny rooms which are just good enough to be livable, but with extremely expensive components.. designed to be parked and traded and never lived in.
    - hkmurakami 9y ago
      Such highrises seem to exist in china. (Refer to their real estate speculation bubble)
- s3nnyy 9y ago
jondubois 9y ago
I'm not so sure that it's a safe bet to assume that stocks will keep going up by 10% per year every year in the future. I think we've already reached a point where people are starting to complain about corporations getting too big and becoming too powerful. What drove increases in the stock market in the past few decades has been the replacement of many small businesses by few large corporate entities. Economies of scale have been a double-edged sword; while they have allowed consumers to purchase non-essential goods and services (such as electronic devices and appliances, holidays, clothing, entertainment...) for cheaper, they have also been responsible for driving up the prices of essentials likes housing, transport, electricity, medicine, education, etc (e.g. by shifting the workforce to big cities where corporate HQs are)... I think we'll reach a point in the near future when city-dwellers will start running out of resources to support basic living essentials and this will force them out of cities - This will drive real estate prices down but it will also drive down stock prices which depend on that lifestyle. I think the bubble that we're in now affects every person on the planet so if/when it bursts, the repercussions will be massive.
- walshemj 9y ago
  yeh a lot of investment pros are worried that the market is getting to high I am wondering if I ought to take some of my profits and buy gold etf's or just got cash and wait for the fall to buy back in
  - zo1 9y ago
    When discussing long-term stocks and the market, I'm always reminded of this article from the NY Times: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...
    - J-dawg 9y ago
      That chart seems to directly contradict the oft-repeated advice of “never try to time the market”.
  - 9y ago
j7ake 9y ago
So what happens when if you move back to USA would you still get advantages of 0 percent capital gains? Or would you have to move everything to the USA ?
- s3nnyy 9y ago
  Good question. I think usually you are taxed where you live. Unless you are a US citizen, then you are taxed also by the US if you earn more than $100k. (As an American, if you open a bank account in Switzerland you have to declare a special form, stating that you will correctly declare taxes to the US etc. I think you even have to fill this form if you hold a green-card or ever worked/paid taxes in your life in the US).
  - gilj 9y ago
    One of the very first things they ask you when you open a bank account in Switzerland is whether you are from the US. When I was asked this, and I asked them why this was important (I'm not from the US btw.), the person on the other side of the table told me that if I was, she'd have to get her manager.
    - s3nnyy 9y ago
      Yeah, all that changed heavily since the bank-secrecy laws were removed in 2013. Some decades ago it was probably really like in Wolf of Wallstreet: https://www.youtube.com/watch?v=ndTbiDQjbiE https://www.youtube.com/watch?v=ndTbiDQjbiE People coming here with suitcases full of money was one thing but a totally other level was that some Swiss bankers really flew over to the US with encrypted laptops "to get new customers".
bradleyjg 9y ago
For my follow Americans thinking about commenting on this, keep in mind that mortgages vary quite a lot from country to country. The mortgage system we have in the United States--characterized by: domination by the government (in the form of GSEs), long (30 year) fixed rate mortgages with no prepayment penalties, high leverage ratios (up to 19:1 or higher), and low spreads--is not the system used elsewhere. Other countries also tax mortgages and homes differently, and may have far more widespread rent regulations in place. Rules of thumb and folksy wisdom that was developed in the context of the US system probably won't translate well to a very different one.
- uiri 9y ago
  For instance, Canada (which, despite its resource based economy, is generally seen as fairly similar to the US) has no mortgage interest deduction, doesn't permit mortgages for terms of longer than 5 years (amortization is generally for 25 years but you refinance as a matter of course at least every 5 years), and generally provinces are more tenant-friendly than the most tenant friendly US states (e.g. California) with things such as limiting rent increases based on government inflation figures. The tax rules around exempting capital gains from the sale of a primary residence are also different in Canada - more generous but also with more stringent requirements.
- leejo 9y ago
  Mortgages in Switzerland can still take on the literal meaning of the word(s), running for 50 or even 100 years with the debtor's pension fund placed as security. FWIW the OP's cost of living figures in the video included in the linked article seem a little low or are assuming best case. Sure you can get health insurance cover at 250.- CHF a month but that will be at the highest franchise (i forget the English word) so if you do get sick it's going to cost you 2,500 CHF before the insurance kicks in. 1,200.- CHF a month seems low for Zürich, but also high for a single room with no kitchen. I'm paying a little more than that for 3.5 rooms with a kitchen, garage, cave, etc. No, I'm not in Zürich or Genève. 400.- CHF a month on food seems about right if you never eat out at all ever. And sure you can spend as little as 100.- CHF a month on travel, but you're in Switzerland - get out and see a bit of it, go snowboarding/skiing in the winter season.
eldavido 9y ago
For anyone reading this in the US: don't take this at face value. This (my opinion) is coming from someone who's indifferent between renting vs. owning, so is trying to make the decision purely on financial factors. Reasons why this article does't apply in the US: (1) The "eigenmietwert" the author writes about is known as an "imputed income tax". The idea is, most assets generate income: bonds pay interest, stocks pay dividends, etc. A house, which is an asset, always generates economic benefit, it's just a question of the owner (who lives in it), or to a renter (who pays rent). When you think about it, it's kind of absurd that in the US, an owner pays income tax if they rent their house to someone else, but not to themself. Taxes like this are an attempt to level the playing field. (2) The US allows homeowners to deduct mortgage interest (up to a point) from taxable income. Why you can't deduct interest on credit cards or auto loans, but you can on mortgage interest, beats the hell out of me? (3) The US taxes capital gains. California, where I live, has a state-level _surtax_ on capital gains. I'm not sure whether the author is correct about Swiss tax treatment of capital gains, but have no reason to think he's wrong. (4) Interest rates are artificially cheap in the US, as some others have pointed out, due to GSE interference in the mortgage market. There's absolutely no reason Fannie/Freddie should encourage people to buy houses. I also think it's ridiculous that the FHA uses taxpayer funds to let low-income borrowers get cheap loans. Let them rent. Renting isn't some kind of hardship, in many ways, it's better than owning, you have less downside risk and it's easier to relocate for a job. (5) In places like California, where we have Prop 13, property taxes don't reassess -- ever. So, barring a sale, someone who bought a house 30 years ago pays essentially what they paid in property tax then, now. This encourages exactly what you'd think, people move less and try to stay in their homes as long as possible, even performing absurd tax gymnastics like "one-wall remodels" to avoid having their tear-down "remodels" reassessed. (6) "1031 exchanges" and other gimmicks let property owners sell their properties--AT A GAIN--and trade up to a larger place, without ever paying tax. How crazy is this!? (7) In most jurisdictions, property taxes are federally deductible; I get no such deduction as a renter, though it could be argued that my rent is lower as a result (due to the owner's tax writeoff). At bottom, this stems from a cultural attitude we have in the US (really the entire Anglosphere) that homeownership is some sort of God-given right/natural thing to aspire to. I wish this attitude would change. I wouldn't mind renting but it's hard to justify given how tilted US law is toward homeownership.
jldugger 9y ago
> A financially rational person would consider buying a house if the P/R ratio is 15 or lower. How does one go about calculating that? Or reading someone else's calculations? For real estate prices I can check out the Case-Shiller, for P/R I got nothing.
- s3nnyy 9y ago
  I linked to that source in the article: http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/ http://affordanything.com/2015/11/24/is-renting-better-than-...
  - jldugger 9y ago
    Ah, I figured that underline was for emphasis. Sadly your source doesn't cite its own sources. It's pretty rare to see a home both for sale and for rent, so you'd likely be comparing oranges for sale with apples for rent. A lot of the magic of Case-Shiller is in finding valid comparables over time, so I'm hoping someone has put together a similar time regional series for rents themselves. Maybe not -- it's not like there's a huge market for derivatives on rental properties.
notadoc 9y ago
> While in the US you have regions where people make $50k a year and a house costs $50k — $100k LOL, not on the coastal states. If it's the west coast, people earn 50k while starting house prices are 500k+
- s3nnyy 9y ago
  In the article, I explicitly mention cities like San Antonio, Houston etc. and link to my source: https://www.numbeo.com/property-investment/rankings_current.jsp https://www.numbeo.com/property-investment/rankings_current....
  - notadoc 9y ago
    Texas is on the Atlantic gulf coast, it is not on the west coast of the USA. As far as Houston goes, look for yourself: https://www.zillow.com/houston-tx/houses/ https://www.zillow.com/houston-tx/houses/ A dilapidated tear down in an undesirable area is about what you'll get for under $100k in Houston https://www.zillow.com/homedetails/6858-Evans-St-Houston-TX-77061/27840739_zpid/ https://www.zillow.com/homedetails/6858-Evans-St-Houston-TX-... Anyway, on the west coast of the USA housing is extraordinarily expensive and many multiples of median income.
iagooar 9y ago
Yeah Switzerland is great as long as you don't have children. Once you get a child, well, you're out of luck. Childcare in Switzerland is the craziest expense I've seen in my life, where having your kid looked after for 5 days a week will cost you 2-2,5k CHF / USD per month! And if you have a second child, they might give you 10% discount. So around 4,5k USD per month for 2 kids. It's madness! Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month. So while I agree that Switzerland is a nice place to be while 20-30, after that age it hugely depends on your situation. Got 2 kids and know some German? You might actually be better off in Germany.
- s3nnyy 9y ago
  OP here. I disagree with everything you said. > having your kid looked after for 5 days2-2,5k CHF / USD per month! Yes but only when your kid is 2-3 years old. After that kindergarten is free. Superb elementary school, high-school is free; and on top Uni-Zurich and ETH, the MIT of Europe, is also almost free (costs like 500$ a semester). > Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month. Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/materialien/mat_wohnung.pdf https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
  - deleted 9y ago
    [deleted]
  - unlmtd1 9y ago
    Sorry to break it to you, sir/mam, but nothing is free.
  - legulere 9y ago
    > and on top Uni-Zurich and ETH, the MIT of Europe Universities are way more on a level field in Europe than in the US. “Elite” universities will just be marginally better than good universities that come in the dozens and you probably haven’t heard of.
joshuaheard 9y ago
A couple flaws in the article. If you don't buy a house but buy stocks, you will pay rent. According to the numbers in the article, this nearly cuts the stock return in half. Also, the article states you will lose money on the depreciation of the building, but does not take into account the appreciation of the land. The land appreciation is highly leveraged, as well, since most people typically place only 20% down on the property, but you gain the appreciation on the gross price of the estate. But I would say that, here is Seattle, and probably all along the West coast, you do have foreign investment, mainly from China, driving up the cost of real estate.
- s3nnyy 9y ago
  OP here. I think I wrote: > "the land doubled in value and is worth 200k CHF" Even if you add up not having to pay rent and possible sale of the house (on which y) you would still end up much better with stocks: House: You buy the house, after 30 years let's say the value stays the same: You own 500.000 CHF worth of house. (Assuming you had no repairs and the value stayed the same, which is VERY optimistic). You sell the house. you pay a whopping tax on that. Stocks: You paid rent of 1600 CHF (numbers I used in the article). Within 30 years, you burn ~500.000 CHF on rent but you make 4-8 million CHF with conservative stocks assuming a 7-10% compound interest rate. In Switzerland, you sell this stock tax-free. Is there anything I am missing?
  - neffy 9y ago
    The article is also assuming exchange rates stay the same over that period. Unlikely.
    - jpatokal 9y ago
      If your crystal ball can forecast future exchange rates accurately, you can ignore all other investment advice and make millions off forex.
  - frankmcsherry 9y ago
    > Is there anything I am missing? Like, lots, I think. I don't own property in Switzerland, but you write as if property transactions are in cash up-front. Instead, you put some money down (why the GP mentioned leverage), and the amount you don't make back by investing in stocks is this opportunity cost. The amount saved in rent is also subject to compound interest; unless you are worried that this person is a serial home purchaser those savings will be invested in the market. I'm sure you can come up with more details and that the market probably wins, but you asked what you were missing.
yvan 9y ago
Well, if I have to buy a property in Switzerland, it wouldn't be to make living for ma retirement, but more for not to pay a crazy rent. A property which you rent for 2.2k is easily 1.2k in mortgage, which means if you are a owner, you're making 1k per month and in the top of it, if you play it well, you could lower much more your taxes. At the end, I pay fewer taxes (I'm not expecting ever to finish paying my property in Switzerland), I pay less rent and I invest more in stocks.
RHSman2 9y ago
In switzerand, you buy a house to live on, not to profit on. First 5 years you are heavily taxed if you sell. When I got my mortgage they capped morgages as they knew there was a bubble starting. As a single, somewhat lonesome country the objective function is to manage stability. (Not that I know anything about economics)
JamalMolla 9y ago
See, it’s about right approach and method to things, it is irrelevant whether its real-estate, stocks, binary or Forex, it’s just for right way. As a Binary Option trader, I have found things relatively easier thanks to binopt.co.uk, which not only explain about the ways of trading but also strategies and help us with picking the BEST broker.

99 points by s3nnyy 9y ago

Buy a small place enough to live. If you take a mortgage pay it as soon as possible to be debt-free. Then invest in diverse things with best return while being tax smart. Perhaps barbell method.

davidgay 9y ago
My understanding is that's not a wise Swiss-property investment strategy (the subject of this article after all...). There, the combination of no capital gain taxes, a tax on wealth, very-low-and-stable interest rates means that one should take an interest-only-mortgage and invest what would have otherwise been your principal payments...
- s3nnyy 9y ago
  Tax on wealth is really low unless you have millions.
- Retozi 9y ago
  This is a quite common myth that is factually wrong. It's the main way for a private wealth advisors to talk somebody into a unecessary mortage. The interest rate on mortages is always higher compared to the interest rate on leverage for stock (by using the stock itself as collateral). You can get close to the yield on swiss confederation bonds if you buy well priced, leveraged ETFs. Obviously that interest rate is as stable if not more stable than the interest rates on mortages. Please DO NOT buy stocks with money from a mortage. you're just giving up at least 1% yield.
  - pjc50 9y ago
    > leverage for stock Please note that with leverage (stocks or real estate) is is possible to lose more money than you invest.
ryanbertrand 9y ago
Switzerland makes home owners pay taxes as if they rented the house out for 12 months each year. This could add a nice chunk to your net cost of owning.
- corford 9y ago
  Which I guess most landlords would simply pass on to the tenants?
  - petre 9y ago
    It's rent adjusted. So if everyone passes it on to the tennants they end up paying more tax.
  - branchless 9y ago
    Nope, that's not how prices are set. https://www.quora.com/How-does-a-land-value-tax-not-create-deadweight-losses https://www.quora.com/How-does-a-land-value-tax-not-create-d...
  - tonfa 9y ago
    If they rent it they pay income tax anyway (or rather the company that owns the place does). The "virtual rent" added to income is for people who own the place where they live. Switzerland is not very home ownership friendly, at least there are very little tax incentives for it (personally I'd rather have people invest their wealth into productive things rather than real estate, so I find it good). In large cities most places are owned by banks/insurances/other real estate companies and rented out.
    - gnaritas 9y ago
      I wouldn't call not giving special privileges to home owners over renters unfriendly, I'd call it neutral and fair.
      - jacalata 9y ago
        They didn't say it was unfriendly, they said it was not friendly. So, neutral.

Kenji 9y ago

Houses are bad investments due to foreign millionaires inflating real-estate for the rest of us. Is it really foreign millionaires or is it local billionaires - namely the banks throwing money with ridiculously low interest rates at everyone - who inflate the house prices?

NiklasMort 9y ago

rich people problems

marklit 9y ago

I would suspect a few of these wealthy foreigners buying property are trying to make sure there wealth is tied up in something their home state cannot take away ownership of. If it depreciates a bit, it's probably fine. 97% of something is better than nothing. I also suspect they have nice stock portfolios already as well.

cgb223 9y ago
Makes sense A lot of Chinese nationals are buying property in the states and Canada in order to accomplish the same thing I wonder how this kind of cash parking affects property values?
- sulam 9y ago
  You wonder? It's easy to guess. They go up. A lot. But you don't have to guess, just look at property values for anything at all nice in Vancouver. Practically the whole city could not afford to buy a house there on their current income.
- ikeyany 9y ago
  > I wonder how this kind of cash parking affects property values? Go look at housing prices in every city on the west coast.
- minikomi 9y ago
  Is it possible to create "real estate" which is basically geared towards this kind of thing? Eg. a large vertical block of tiny, tiny rooms which are just good enough to be livable, but with extremely expensive components.. designed to be parked and traded and never lived in.
  - hkmurakami 9y ago
    Such highrises seem to exist in china. (Refer to their real estate speculation bubble)
s3nnyy 9y ago

jondubois 9y ago

I'm not so sure that it's a safe bet to assume that stocks will keep going up by 10% per year every year in the future. I think we've already reached a point where people are starting to complain about corporations getting too big and becoming too powerful. What drove increases in the stock market in the past few decades has been the replacement of many small businesses by few large corporate entities. Economies of scale have been a double-edged sword; while they have allowed consumers to purchase non-essential goods and services (such as electronic devices and appliances, holidays, clothing, entertainment...) for cheaper, they have also been responsible for driving up the prices of essentials likes housing, transport, electricity, medicine, education, etc (e.g. by shifting the workforce to big cities where corporate HQs are)... I think we'll reach a point in the near future when city-dwellers will start running out of resources to support basic living essentials and this will force them out of cities - This will drive real estate prices down but it will also drive down stock prices which depend on that lifestyle. I think the bubble that we're in now affects every person on the planet so if/when it bursts, the repercussions will be massive.

walshemj 9y ago
yeh a lot of investment pros are worried that the market is getting to high I am wondering if I ought to take some of my profits and buy gold etf's or just got cash and wait for the fall to buy back in
- zo1 9y ago
  When discussing long-term stocks and the market, I'm always reminded of this article from the NY Times: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...
  - J-dawg 9y ago
    That chart seems to directly contradict the oft-repeated advice of “never try to time the market”.
- 9y ago

j7ake 9y ago

So what happens when if you move back to USA would you still get advantages of 0 percent capital gains? Or would you have to move everything to the USA ?

s3nnyy 9y ago
Good question. I think usually you are taxed where you live. Unless you are a US citizen, then you are taxed also by the US if you earn more than $100k. (As an American, if you open a bank account in Switzerland you have to declare a special form, stating that you will correctly declare taxes to the US etc. I think you even have to fill this form if you hold a green-card or ever worked/paid taxes in your life in the US).
- gilj 9y ago
  One of the very first things they ask you when you open a bank account in Switzerland is whether you are from the US. When I was asked this, and I asked them why this was important (I'm not from the US btw.), the person on the other side of the table told me that if I was, she'd have to get her manager.
  - s3nnyy 9y ago
    Yeah, all that changed heavily since the bank-secrecy laws were removed in 2013. Some decades ago it was probably really like in Wolf of Wallstreet: https://www.youtube.com/watch?v=ndTbiDQjbiE https://www.youtube.com/watch?v=ndTbiDQjbiE People coming here with suitcases full of money was one thing but a totally other level was that some Swiss bankers really flew over to the US with encrypted laptops "to get new customers".

bradleyjg 9y ago

For my follow Americans thinking about commenting on this, keep in mind that mortgages vary quite a lot from country to country. The mortgage system we have in the United States--characterized by: domination by the government (in the form of GSEs), long (30 year) fixed rate mortgages with no prepayment penalties, high leverage ratios (up to 19:1 or higher), and low spreads--is not the system used elsewhere. Other countries also tax mortgages and homes differently, and may have far more widespread rent regulations in place. Rules of thumb and folksy wisdom that was developed in the context of the US system probably won't translate well to a very different one.

uiri 9y ago
For instance, Canada (which, despite its resource based economy, is generally seen as fairly similar to the US) has no mortgage interest deduction, doesn't permit mortgages for terms of longer than 5 years (amortization is generally for 25 years but you refinance as a matter of course at least every 5 years), and generally provinces are more tenant-friendly than the most tenant friendly US states (e.g. California) with things such as limiting rent increases based on government inflation figures. The tax rules around exempting capital gains from the sale of a primary residence are also different in Canada - more generous but also with more stringent requirements.
leejo 9y ago
Mortgages in Switzerland can still take on the literal meaning of the word(s), running for 50 or even 100 years with the debtor's pension fund placed as security. FWIW the OP's cost of living figures in the video included in the linked article seem a little low or are assuming best case. Sure you can get health insurance cover at 250.- CHF a month but that will be at the highest franchise (i forget the English word) so if you do get sick it's going to cost you 2,500 CHF before the insurance kicks in. 1,200.- CHF a month seems low for Zürich, but also high for a single room with no kitchen. I'm paying a little more than that for 3.5 rooms with a kitchen, garage, cave, etc. No, I'm not in Zürich or Genève. 400.- CHF a month on food seems about right if you never eat out at all ever. And sure you can spend as little as 100.- CHF a month on travel, but you're in Switzerland - get out and see a bit of it, go snowboarding/skiing in the winter season.

eldavido 9y ago

For anyone reading this in the US: don't take this at face value. This (my opinion) is coming from someone who's indifferent between renting vs. owning, so is trying to make the decision purely on financial factors. Reasons why this article does't apply in the US: (1) The "eigenmietwert" the author writes about is known as an "imputed income tax". The idea is, most assets generate income: bonds pay interest, stocks pay dividends, etc. A house, which is an asset, always generates economic benefit, it's just a question of the owner (who lives in it), or to a renter (who pays rent). When you think about it, it's kind of absurd that in the US, an owner pays income tax if they rent their house to someone else, but not to themself. Taxes like this are an attempt to level the playing field. (2) The US allows homeowners to deduct mortgage interest (up to a point) from taxable income. Why you can't deduct interest on credit cards or auto loans, but you can on mortgage interest, beats the hell out of me? (3) The US taxes capital gains. California, where I live, has a state-level _surtax_ on capital gains. I'm not sure whether the author is correct about Swiss tax treatment of capital gains, but have no reason to think he's wrong. (4) Interest rates are artificially cheap in the US, as some others have pointed out, due to GSE interference in the mortgage market. There's absolutely no reason Fannie/Freddie should encourage people to buy houses. I also think it's ridiculous that the FHA uses taxpayer funds to let low-income borrowers get cheap loans. Let them rent. Renting isn't some kind of hardship, in many ways, it's better than owning, you have less downside risk and it's easier to relocate for a job. (5) In places like California, where we have Prop 13, property taxes don't reassess -- ever. So, barring a sale, someone who bought a house 30 years ago pays essentially what they paid in property tax then, now. This encourages exactly what you'd think, people move less and try to stay in their homes as long as possible, even performing absurd tax gymnastics like "one-wall remodels" to avoid having their tear-down "remodels" reassessed. (6) "1031 exchanges" and other gimmicks let property owners sell their properties--AT A GAIN--and trade up to a larger place, without ever paying tax. How crazy is this!? (7) In most jurisdictions, property taxes are federally deductible; I get no such deduction as a renter, though it could be argued that my rent is lower as a result (due to the owner's tax writeoff). At bottom, this stems from a cultural attitude we have in the US (really the entire Anglosphere) that homeownership is some sort of God-given right/natural thing to aspire to. I wish this attitude would change. I wouldn't mind renting but it's hard to justify given how tilted US law is toward homeownership.

jldugger 9y ago

> A financially rational person would consider buying a house if the P/R ratio is 15 or lower. How does one go about calculating that? Or reading someone else's calculations? For real estate prices I can check out the Case-Shiller, for P/R I got nothing.

s3nnyy 9y ago
I linked to that source in the article: http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/ http://affordanything.com/2015/11/24/is-renting-better-than-...
- jldugger 9y ago
  Ah, I figured that underline was for emphasis. Sadly your source doesn't cite its own sources. It's pretty rare to see a home both for sale and for rent, so you'd likely be comparing oranges for sale with apples for rent. A lot of the magic of Case-Shiller is in finding valid comparables over time, so I'm hoping someone has put together a similar time regional series for rents themselves. Maybe not -- it's not like there's a huge market for derivatives on rental properties.

notadoc 9y ago

> While in the US you have regions where people make $50k a year and a house costs $50k — $100k LOL, not on the coastal states. If it's the west coast, people earn 50k while starting house prices are 500k+

s3nnyy 9y ago
In the article, I explicitly mention cities like San Antonio, Houston etc. and link to my source: https://www.numbeo.com/property-investment/rankings_current.jsp https://www.numbeo.com/property-investment/rankings_current....
- notadoc 9y ago
  Texas is on the Atlantic gulf coast, it is not on the west coast of the USA. As far as Houston goes, look for yourself: https://www.zillow.com/houston-tx/houses/ https://www.zillow.com/houston-tx/houses/ A dilapidated tear down in an undesirable area is about what you'll get for under $100k in Houston https://www.zillow.com/homedetails/6858-Evans-St-Houston-TX-77061/27840739_zpid/ https://www.zillow.com/homedetails/6858-Evans-St-Houston-TX-... Anyway, on the west coast of the USA housing is extraordinarily expensive and many multiples of median income.

iagooar 9y ago

Yeah Switzerland is great as long as you don't have children. Once you get a child, well, you're out of luck. Childcare in Switzerland is the craziest expense I've seen in my life, where having your kid looked after for 5 days a week will cost you 2-2,5k CHF / USD per month! And if you have a second child, they might give you 10% discount. So around 4,5k USD per month for 2 kids. It's madness! Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month. So while I agree that Switzerland is a nice place to be while 20-30, after that age it hugely depends on your situation. Got 2 kids and know some German? You might actually be better off in Germany.

s3nnyy 9y ago
OP here. I disagree with everything you said. > having your kid looked after for 5 days2-2,5k CHF / USD per month! Yes but only when your kid is 2-3 years old. After that kindergarten is free. Superb elementary school, high-school is free; and on top Uni-Zurich and ETH, the MIT of Europe, is also almost free (costs like 500$ a semester). > Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month. Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/materialien/mat_wohnung.pdf https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
- deleted 9y ago
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- unlmtd1 9y ago
  Sorry to break it to you, sir/mam, but nothing is free.
- legulere 9y ago
  > and on top Uni-Zurich and ETH, the MIT of Europe Universities are way more on a level field in Europe than in the US. “Elite” universities will just be marginally better than good universities that come in the dozens and you probably haven’t heard of.

joshuaheard 9y ago

A couple flaws in the article. If you don't buy a house but buy stocks, you will pay rent. According to the numbers in the article, this nearly cuts the stock return in half. Also, the article states you will lose money on the depreciation of the building, but does not take into account the appreciation of the land. The land appreciation is highly leveraged, as well, since most people typically place only 20% down on the property, but you gain the appreciation on the gross price of the estate. But I would say that, here is Seattle, and probably all along the West coast, you do have foreign investment, mainly from China, driving up the cost of real estate.

s3nnyy 9y ago
OP here. I think I wrote: > "the land doubled in value and is worth 200k CHF" Even if you add up not having to pay rent and possible sale of the house (on which y) you would still end up much better with stocks: House: You buy the house, after 30 years let's say the value stays the same: You own 500.000 CHF worth of house. (Assuming you had no repairs and the value stayed the same, which is VERY optimistic). You sell the house. you pay a whopping tax on that. Stocks: You paid rent of 1600 CHF (numbers I used in the article). Within 30 years, you burn ~500.000 CHF on rent but you make 4-8 million CHF with conservative stocks assuming a 7-10% compound interest rate. In Switzerland, you sell this stock tax-free. Is there anything I am missing?
- neffy 9y ago
  The article is also assuming exchange rates stay the same over that period. Unlikely.
  - jpatokal 9y ago
    If your crystal ball can forecast future exchange rates accurately, you can ignore all other investment advice and make millions off forex.
- frankmcsherry 9y ago
  > Is there anything I am missing? Like, lots, I think. I don't own property in Switzerland, but you write as if property transactions are in cash up-front. Instead, you put some money down (why the GP mentioned leverage), and the amount you don't make back by investing in stocks is this opportunity cost. The amount saved in rent is also subject to compound interest; unless you are worried that this person is a serial home purchaser those savings will be invested in the market. I'm sure you can come up with more details and that the market probably wins, but you asked what you were missing.

yvan 9y ago

Well, if I have to buy a property in Switzerland, it wouldn't be to make living for ma retirement, but more for not to pay a crazy rent. A property which you rent for 2.2k is easily 1.2k in mortgage, which means if you are a owner, you're making 1k per month and in the top of it, if you play it well, you could lower much more your taxes. At the end, I pay fewer taxes (I'm not expecting ever to finish paying my property in Switzerland), I pay less rent and I invest more in stocks.

RHSman2 9y ago

In switzerand, you buy a house to live on, not to profit on. First 5 years you are heavily taxed if you sell. When I got my mortgage they capped morgages as they knew there was a bubble starting. As a single, somewhat lonesome country the objective function is to manage stability. (Not that I know anything about economics)

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