If you are aiming at an apartment or houses around 1,000,000 CHF, you should buy at least a 2 bedrooms’ unit because (1) you may start a family soon, and (2) you can rent out the spare bedroom to help to paying the mortgage. Interest rates in Switzerland are rock-bottom low right now, plus the Central Bank might release another stimulus package to fight off the 2nd wave of COVID-19, so shopping around with banks might get you a sweeter deal.
Buying real estate is also an investment, and the price of houses in Ticino area are going up, not down so you will realize capital gain returns once you sell it.
But it is not a liquid investment nor one you can easily get rid of should the need arise.
Just because prices are going up now doesn't mean they will in the future!
If you know you want property long term, having your money in property gives a level of hedging. Its current value follows the market which is OK if selling and then buying another place, no matter which direction the market moves.
Not getting too specific about locations, eras, etc
In times before 2008, Real Estate "always went up", and so people thought of it as a no brainer
In times after 2008, stocks "always went up", and so people realised you can get 10% or more per year with a fully liquid investment, so why bother with anything else?
The matter of the fact remains that NOBODY KNOWS
People get paid a lot of freaking money to know, and they still can't know.
Stocks have had lost decades. 1965 to 1975, 1972 to 1982, and most recently 1999 to 2009. The notion of put it in an ETF and forget about it for 10 years, does not mean you will get a return.
Real estate is generally safer, but the fact remains that you are leveraged 4x. And it's not 4x on a small investment of crypto, or stocks, or something that you can go in for money you will not cry too much over, it's going 4x for your life savings.
So since you don't know, don't try to find easy solutions or heuristics, because there aren't any. Diversify, spread it around, and think outside the box. E.g. maybe getting new skills will increase your salary substantially, or it will open up new opportunities. In many cases, the best return on investment comes from investing on yourself, and that is more true the lower the salary you're getting.
If we are talking about the primary home you need a place to live in for piece of mind. Personally, I have rented for many years and I am tired of renting. Therefore it is not appropriate to see it as an investment if it is your 1st home.
However, I think that in the present situation you will get more returns from investments in stocks and other liquid assets rather from real estate (unless you can find an opportunity and do some upgrades/renovations). It is more complicated than that because tax regime also will determine the returns.
Why can't a first home also be an investment?
Many people build up equity in a relatively larger family home, and then downsize on retirement to take the equity out.
In Switzerland this seems to be particularly common, and I know three families where retired people handed on the family home to their children who had their own young kids, in two cases swapping it for their flat.
I don't know the financial situation of the above cases, but if I was the parent I would sell my house on to one of my kids at a good price, give half the profit to the other, and then add the remainder to my savings.
I can see pros and cons of each. If you rent, you can let the LL take care of all the hassle maintenance.
Depending on the type of the construction a home may or may not require a lot of maintenance. My issue with property is more about the property taxes in the area (they may double or triple them you never know) and damages from flooding, bad weather or similar catastrophe.
Renting means that a few times in your life you will be homeless or near homeless and you need to beg landlords to take you in etc. Depends on the area of course.
I am dealing with this question day and night while money gathers dust in my bank account
So basically, damned if you do and damned if you don't?
Obviously if you buy badly you have problems. Same applies to renting - and there we often hear nightmare stories of landlords ignoring issues etc.
I don't understand the point about property taxes - do you have any evidence of this happening?? And the catastrophes you mention also equally apply to renting, and this is why we have insurance.
Exactly!
With renting, you can leave faster and bleed less money if you make a bad decison.
if you're without kids then renting wins out in cases of extreme problems. you have major damage to the flat, then you can simply give notice, move and let the landlord deal with it.
I empathise with the OP having gone through a similar thought process in my late 20s, when the risk reward radio for property was more beneficial to today.
Personally I‘d continue to rent and invest for growth. Now 50 I‘d look at the 200k as a pension/retirement accelarator (most folks won‘t have this sum in their late 30s yet, so the OP is 10years ahead, before compounding for 20 to 30+ years).
You like numbers: renting is reasonable if you think of the rent as including a premium for insurance so you are not liable for many issues as buildings age. The lifetime of kitchens, bathrooms, flooring, heating etc is unvelievably short especially from a discounted cash flow perspective over time. (2 to 3 total replacements in 30-40 years). Even new building warranties only last 10 years!
10% growth a year on your 200k doubles each 7 years (7% each decade). In 30-35 years you could have up to a million or more additional pension which means you never need to buy as you can afford to rent until 90 (before likely entering alternative living arrangements anyway).
I assume you do your pillar 3a and 3b and pillar 2 contributions until retirement or later above also.
Achieve the same with your future life partner and you can add 50-100% to the above.
Just maintenace on a property is 1% a year so at least a third to almost half of its value over 35-50 years. Plus equipment replacements, at least once or more.
For me the trade is the following: linear increases in rent but with leveraged exposure (200k+) to potentially exponential growth in the markets (eg see TSLA since your original post just in 2020).
You have time to soend time in the market, so no need to time it.
No-one lives for free so rent is cheaper than it seems equalizing the risks.
Good luck, I’m sure you‘ll do fine either way. Choose exponential over linear especially as you have 200k to start with. Keep 3-6 months living expenses (not salary) as an emergency fund in cash or cash equivalents just in case.
Enjoy your future portfolio management hobby! (perhaps)
Personally I bought in my late 20s and again 10 years later before the boom. However I‘ve also sold one property recently and invested instead as above.
Next review in 10 years when I hopefully reach 60
this is amazing, you can sign me up if I can get 10% a year growth. Would you go as far as to say (or even hint!) at what funds your going for there ? I'll do my due diligence but my savings are doing nothing in a bank right now so if there is a low risk 10% fund im all for it.
It was purely meant as an illustration that the OP has time to ride market volatility given his age. Even a more modest 7% return still doubles each 10 years should he wish to be more conservative. (based on S&P500 performance over decades)
I'm neither licensed nor regulated to recommend investments nor provide financial advice. I just have my own opinion. I can only suggest everyone do their own due diligence and choose to invest in what they understand and are comfortable with.
Personally I have chosen a few well diversified conglomerates to directly invest in, where I feel they are active in multiple industry verticals with a very disruptive growth potential, and where I expect to get a return by my retirement timeframe in 10-15 years.
My situation, risk appetite, growth expectations etc are unlikely to correspond elsewhere. I have just chosen to deleverage property/real estate in favour of the stock market based on my own outlook, which is relevant to context of the OP's question.
What works for me may not for others. There are no guarantees. The above is not a recommendation, just a comparative illustration as the OP asked a binary comparative question, not for specific stock/fund recommendations/hints.
I think that buying a house is a brilliant option until you lose your job and have to relocate, then it sucks.
Sean Spicer made a joke about asking for financial advice from USWeekly, who promptly replied with superb advice: buy a broad mix of low-cost index funds.
No there is not.
Low risk - low reward.
And 10% annually is no low reward.
With current high valuations, and with broad world index/ETF funds, I would expect a more modest/conservative annualized rates for the coming years.
And if countries increase inflation (in order to boost economy in the short term, but not sure how likely that is), that growth might be further eaten up.
I would calculate with 5-7%, to stay vigilant.
Edit: Yes there will now be a soon coming comment about Fundsmith from a certain someone etc.
But with all managed/active/mutual funds there is the challenge of "picking the winner" for the long term - you might get lucky, or might not too.
I think it‘s great how much you managed to save at your age. Leaving your money sitting in a bank account is probably not the best plan so it’s also smart you are looking into other things to do with it.
I can relate to your situation, on the one hand you want the hard-earned money you saved to make more money, on the other hand you also want it to actually improve your quality of life.
As said above, as a single person, your salary will limit the size of your mortgage. And the size of your mortgage will limit your ability to buy a place you love. In Switzerland buying is also not necessarily a brilliant financial investment for a variety of reasons (Eigenmietwert on tax, high prices and therefore high mortgage...). So, don’t be pressured to buy, the 2000 you are ‚wasting‘ on rent will still be ‚wasted‘ on other costs once you buy.
So, if I were in your situation and loved the place I am renting for 2000, for goodness sake, keep it and enjoy your life. Invest your money in ETFs like VTI and VXUS or similar for now. Read up and educate yourself on the Vanguard website. Make solid choices here, not risky ones.
Keep an eye on the housing market and maybe reconsider if you discover a cheaper place you still love or maybe at the latest when you have a family your situation and priorities will change.
Low risk = low returns but what gives the highest return possible without losing a single cent of your principal?
Absolutely nothing in life will give you that guarantee, even less in finance.