Apartment as investment – is it profitable?

The apartment as investment: More and more Swiss people are taking the negative interest rates as an opportunity to look for lucrative investment alternatives. The latest trend: Buy a condominium and rent it to third parties. In some residential areas, about 20 percent of the floor units are already business cases.

Let us take a new housing estate in Lucerne as an example: „Of 50 apartments, 12 are not used by the owners, but rented,“ says the 55-year-old condominium owner Eva M. A neighbor, obviously very wealthy, even bought eight condominiums. He has leased seven of them as rented apartments; he markets the eighth on the Internet for short-term stays: „We noticed that by the foreign faces in the stairwell,“ says Eva M. Apparently, the neighbor regularly hosts tourists from all parts of the world in his apartment.

«National sport»: Apartment as investment

In the context of each individual condominium owner’s ownership rights, such rentals are permissible – as long as the neighbors are not unduly disturbed and provided the condominium community’s regulations do not prohibit certain lease types. There are various reasons why the home as a financial investment has become almost a „national sport“ today: Savings deposits, time deposits or other secure investments, such as Swiss franc bonds, bring at most „mini-interest“ or often no returns at all. For larger deposits, which are parked in a bank account, the first institutions are introducing negative interest rates now. Thus, the boom in condominiums is due to the fact that many private individuals are hunting for a secure and at least fairly profitable investment. Ansgar Gmür, Swiss Home Owners Association (HEV) Director, states: „Condominium ownership is particularly popular among people over the age of 45. They buy an apartment for retirement and as an investment.“

 

«Feierabendvermieter»: Wohnungen zu vermieten, ist nicht immer leicht verdientes Geld – es ist mit Zeitaufwand und Risiken verbunden. (Bild: fotolia)

«After-work landlord»: Renting apartments is not always easy money – it is time consuming and risky. (Image: fotolia)

 

Opportunities and risks

In the past, individuals with a flair for real estate often bought apartment buildings; however, because they are barely affordable in today’s environment, more and more people are turning to condominiums. Nevertheless, private investors and „after-hours landlords“ must pay attention to some things: If the apartment is bought as an investment from the beginning, you should set up some sort of „business plan.“ Is every apartment suitable as a financial investment? Important is the location: Well-developed apartments in a central location can rent almost always – if not always at any price.

As a private person with an apartment as a financial investment, you must continue to think about finances. Is the investment possibly overpaid today? Investigate mortgage lending – if you go to the limit on debt, you might face over-indebtedness in the event of a crisis. Banks usually estimate investment objects, including rented condominiums, conservatively. Incidentally, if the owner does not move in at the beginning, he cannot use pension fund credit as a financial aid.

The last 15 years were actually „golden years“ for apartment owners: The demand for housing in good locations was strong. Renting the apartment as an investment thus generated regular, relatively secure income. In addition, owners were still benefiting from their properties‘ successively rising market values. If one adds both components, one really can speak of „concrete gold,“ which shines like few other investments. Yields could have been six to seven percent in good locations.

 

Immer mehr Private investieren ihre Ersparnisse nicht in Obligationen oder Aktien, sondern kaufen Immobilien. (Bild: fotolia)

More and more private investors are not investing their savings in bonds or equities, but are buying real estate. (Image: fotolia)

 

Apartment as an investment: forecasts

With a condominium as an investment, what will the future bring? Most economists point out the likelihood that a turnaround has occurred. In other words, in the next few years, prices could decline rather than rise further. Not to forget the lump risk with individual objects: Once a temant is insolvent, or if other difficulties arise, this can upset many calculations for the owner. In addition, renting – even on a smaller scale – means some time and effort. Furthermore, one only should venture the step if as owner and landlord he brings certain knowhow (commercial organization, knowledge of tenancy and condominium property, etc.). Conclusion: Some „golden years“ behind us and attractive mortgage rates are no guarantee that you can become a millionaire with real estate.

 

Wohnung als Geldanlage? Damit sich das Objekt gut vermarkten lässt, müssen Lage und Standard stimmen. (Bild: Allreal, Neubau Kittenmühle.)

Apartment as investment? In order for property to be marketed well, location and standard must be right. (Image: Allreal, new building Kittenmühle.)