what if scenario, is it really beneficial to have a mortgage?

Finance, Taxes, Banking, Insurance and Retirement
21
The amount we pay in interest each month is less than a third of what we would pay in rent for the same property. Obviously there are other costs to home ownership but this is a biggie.

22
not true. as when you buy a property for self-occupation, the tax value is not the amount you pay/deposit for it, but a set value typically much lower than the actual market value and so you can drastically reduce your wealth tax basis.

example:

1. have $2m in cash. have $2m subject to wealth tax.

2. buy house for $2m. have $2m in housing asset, but for tax purposes, it is valued at (say) $300k. only have $300k subject to wealth tax.

23
No, far from it.

First, I don't know what you mean by "tax value"; second, you don't make any mention of tax on rental income or tax relief on interest payments.

24
Ah, interesting. Now I am charged about 70% of what I paid for my house. What happens if I buy another one to live in and rent out this one instead? Will they correct the taxable value to what I had originally paid then?

25
No, you will on paper have even less money than you do now.

26
If you borrow 300K at 1% you'll pay CHF3,000 in interest.

This you can deduct from your taxes which at say 30% tax rate would be CHF 900 so net interest cost to you is CHF 2,700

The real advantage is you own the property, which even taking into account repairs is still better than renting, not to mention the uncertainties that go with renting, and not to mention capital appreciation over the long term.

If you're there for the short term, say up to 3 years then rent, but if it's your intention to stay longer term then buy.

27
Capital appreciation over the past has been real, however the possibility going forward is far less likely. Base interest rates are negative in CH & this is not normal, a normal interest rate would make interest payments a multiple of what they are today. Cheap money will not last forever.

28
depends on the gemeinde. for rental properties they may calculate value as a percentage of rental income. e.g. 15x annual rental income.

Just checked my tax returns. zurich and basel-land accepted the lower house value even as a rental. basel-stadt capitalized the rental income and taxed it at a higher tax base.

my current home is valued at ~17% of purchase price for wealth tax purposes.

for further tricks on making money/saving tax with property in switzerland, order my book Phil MCR's Guide to Getting Rich with Swiss Real Estate. Now available on pre-order.

29
I didn't say that, I said it makes no difference whether you have a mortgage or not.

Property clearly does make a difference because the notional tax value is usually less than the actual market value, and the difference reduces your wealth tax liability.

30
This depends by canton. If you buy a property in Geneva this advantage does not exist. The taxable value of property is the price paid. The deemed rental value is calculated by completing a form based on Sqm etc and ends up being quite close to the market rent. In addition the purchase and mortgage taxes in Geneva are ~6%.

Getting rich with Geneva real estate is difficult!

https://www.ge.ch/impot-proprietaire...-impot-fortune

31
you mean because of the additional mortgage?

32
17% less or 83% less than the purchase price??

33
if house worth 100. then tax basis is 17. probably a sign i paid way too much!

34
Our apartment is at 33%, and our rustico at around 5%.

Tom

35
No because the taxable value of the property (on paper) is less than its value in the market i.e. what you pay for it. Except apparently in Geneva.

If you take money out of a mortgage you still have exactly the same amount in total, just now with a big negative and a big positive which cancel each other.

You will also have less money in fact because of all the fees etc, but that's a different point.

I suggest you start drawing out the actual numbers and money flows, all of this is relatively obviously if you write down the numbers in credit and debit columns and see how it adds up.

36

Why is the tax office so far off the market value with their assessment?

At least immediately after purchase it should be really easy to just value it at the purchase price?

Later on look at comparable property being sold.

They almost must be doing this on purpose.

But why?

37
Because it is an advantage to the middle class, upper middle class, the wealthy, the very wealthy and the obscenely wealthy.

I am aware of a Swiss Banker that has seven residences (in addition to revenue properties). Family money though.

38
Hardly, those people can easily choose a more tax friendly jurisdiction, as you say with the Banker it's family wealth. Plenty of Swiss Private Banks are still partnerships Pictet for example, they have a huge amount of land on lake Geneva with the odd house here & there.

39
But that's true in every country isn't it?

The ones I know of at least attempt to value houses at their market value for taxes.

It's strange (and non-transparant, which I dislike. Just put into tax law that real estate is valued at x% of market value for tax purposes or something).

40
Then I shouldn't complain too much for my 70% taxable value, I guess!