Buy or rent in Switzerland, THE answer!

Last updated: October 07, 2020

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“It depends…” a colleague answered me.

I was digging a little more: “But what does it depend on?”

“Well… it’s complicated, you know… you have to take into account a lot of things like taxes, purchase costs, and the cost of renting for the long term… in short, it depends and it’s not simple.”

Thanks for the evasive answer.

And I’m not talking to you about other situations such as:

In fact, none of them were able to give me a concrete answer. And that drove me crazy! For a Cartesian mind like me, I couldn’t believe that there wasn’t a calculator that could tell me whether it was better to buy an apartment in Switzerland (or a house), or to rent it.

The worst thing is that I only found the answer to this question after buying our own home.

In the end, the one who was right was my colleague.

The other opinions I received were only beliefs or assertions out of pure self-interest.

“But then MP, what does it depend on?!” can I hear you mumbling behind your screen.

“It depends on what, for God’s sake!?”

Well, that depends on your personal situation; i.e., the cost of your current rent, the cost of what you would buy instead, and finally what you would do with the difference between these two expenses’ items.

Common thinking suggests that once you own your home, the “rent” you pay pays off your mortgage rather than going up in smoke every month. But what the common wisdom forgets is that there is a plethora of extra costs when you own your home:

Calculating two scenarios between tenant and landlord on this basis is a bit complex, but feasible.

Except that there is another variable to take into account: the opportunity cost. By being a homeowner, you will have equity to bring to obtain your mortgage (at least 20% of the total value of the property) as well as notary fees. This money, if you remain a tenant, could be invested (on the stock exchange for instance) and potentially earn you more than if you put it in stone.

So yes, the answer to “Should I buy or rent in Switzerland?” is definitely “It depends!”

I had to wait 6 years of blogging to find a definitive answer to this problem. Indeed, at the beginning of 2020, I got in touch with the founder of Moneyland.ch for an interview on his website about the FIRE movement. And while discussing, he told me that they had a very detailed and free (!) automatic calculator to know the answer to the famous question “Buy or rent in Switzerland?” while taking into account your personal situation.

So I suggest you that we take two concrete examples so that you understand the calculation method. Because in the end, it’s not that complicated.

That way, afterwards, you will be able to compute your own case, and make an informed choice.

Concrete example #1: should Julia and Steven buy or rent in Olten?

Julia and Steven rent a 4.5-room apartment of 107 square meters in Olten with their two children. They pay CHF 2,015 per month in rent, including charges—which is not much in 2020, but they have been living in the same apartment for four years. They would like to buy a 4.5-room apartment in a residential area of Olten. They have found one which is listed at the price of CHF 770,000.

"Buy or rent" calculator from Moneyland.ch

To find out whether it is better for them to continue renting or buying, they prepare all the data to be inserted in the Moneyland.ch form, starting with information about their potential purchase:

An example of a property close to Olten that our two lovebirds like

Our couple then continues to fill in the information concerning their current rental:

And finally, they still have to select the time frame for the evaluation. They choose to take 25 years because they know they want to stay in Olten at least until their children enter the workforce.

The result on Moneyland.ch is surprising compared to what Julia and Steven had heard before…

“Buy” option

“Rent” option

Conclusion of the Moneyland.ch calculator: for the evaluation period, renting is more favorable than buying for an amount of CHF 19'279.45.

Result of the simulation "Buy or rent" of Moneyland.ch for the case of Julia and Steven from Olten

By playing with the calculator, the couple also realizes that the more they increase the retention period of their property, the more interesting the rental becomes, for example:

On the other hand, under 24 years of retention, the “Buy” option is the most interesting:

As you will have understood, buying or renting in Switzerland depends on a lot of criteria to be taken into account. The most important and difficult to evaluate is the length of time you can stay in the same place.

For a “minimal” difference regarding the total amount invested, our couple prefers to buy because they will be able to have a property that suits them to start their family. Also, they do not wish to be at the mercy of their landlord who might decide one day to stop their lease.

Afterwards, we can also note that their example is biased (our case was the same), because their current rent corresponds to a less attractive property (less recent and less well located) than the one they would like to buy; so if they wanted to have the same type of property they want to buy, their rent would in fact be CHF 2'450/month (compared to CHF 2'015 currently), so the purchase could in fact become a potential opportunity?
If you are in a similar situation, think about comparing apples with apples as they say ;)

Concrete example #2: should Barbara and Henri buy or rent in Nyon?

View of the city of Nyon at the end of the day (photo credit: carnets-nordiques.com)

Barbara and Henri live in a 4.5-room apartment of 110 square meters in Nyon with their two children. They pay CHF 2'700 of rent per month, charges included. They are interested in a 4.5-room apartment in a popular residential area of Nyon which is priced at CHF 1'175'000.

Let’s see what their calculations show:

Result of the calculator: with their data, the purchase is more favorable than the rental for an amount of CHF 606'393.35
Indeed, the appreciation of the property will be greater than the gains they will make through their investment via the bank.

Result of the Moneyland.ch "Buy or Rent" simulation for the case of Barbara and Henri from Nyon

Conclusion

The first and most important thing to remember from this blogpost is that the math never lies. So yes, to the question “Buying or renting an apartment in Lausanne?”, the answer is “It depends.” But it depends on personal data that are easily found, that give you a clear and precise result.

The second most important element of this article is that, apart from the obvious variables such as the price of the property in Switzerland and the price of the Swiss rent, the most impacting variables in the decision “to buy or rent in Switzerland” are the length of time you will live in the same property, and your ability to earn a decent return on your stock market investments.

Afterwards, apart from the mathematical result, there is no single truth, because there are many other parameters. What if you don’t want to risk being dislodged from your rented apartment in Zurich by your current landlord in 10 years time? Or, what if you love to renovate old constructions and are frustrated by renting a house in Switzerland because you can’t do anything about it? Or what if you decide to move abroad in 8 years and don’t want to stay for 25 years in the same place as planned?

On the other hand, there is a golden rule: you must make your own simulations before making any important decision to rent or buy in Switzerland over the next 20-30 years, because the effects add up very quickly with such amounts — we are talking about dozens or even hundreds of thousands of CHF more in your pocket!

And of course, as a frugalist, the potential savings on both sides have to be invested properly, like Julia and Steven.

And you, did you buy or rent? What does the Moneyland.ch calculator say for your situation? Did you already know the result? Surprised? Or not?


P.S.: I am thinking of making a series based on this article, as there are so many different examples as there are readers. Don’t hesitate to send me all your data via email if you’re hesitating between buying or renting in Switzerland, so that we can make an article about it on the blog and get the opinion of the MP community.


[1] How do I calculate my marginal tax rate?
To obtain your marginal tax rate, simply go to the online tax calculator for your canton. Enter your personal details (including whether you are married, with or without children, etc.) and your current taxable income and then enter the amount of tax you have to pay according to the calculator. You repeat this via the online tax calculator for the direct federal tax portion.

Then repeat these two calculations with your new taxable income, for example, if your salary is increased by CHF 1'000.

Finally, calculate the rate using the following formula: (new tax - current tax) / (new taxable income - old taxable income) = marginal tax rate.

With a concrete example, this gives:

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