Whether you want to live in a property yourself, use it as a vacation home, or are thinking of acquiring an investment property: deciding to buy and own real estate has financial implications. That makes it worthwhile to address the issue in detail before buying. And even after you have made your purchase and are the owner of the property, you should regularly consider how to maintain or even increase its value. This will help you to achieve an attractive price if you choose to sell it at a later date.
What should you consider before buying real estate?
Real estate ownership entails not only rights, but also obligations. Are you planning to purchase a property with your partner? While the Civil Code (CC) contains numerous provisions on joint real estate ownership for married couples, there are virtually no rules regarding the rights and obligations of cohabiting couples.
For unmarried couples in particular, it is therefore important to obtain an overview of the legal basis before making a joint purchase. This will ensure that the ownership situation is clear if anything should go wrong. A cohabitation agreement sets out the most important details, such as the ownership situation, proportional breakdown of ongoing costs, and the procedure to be followed in the event of separation.
The law provides for three ownership options. Which one you ultimately choose depends on your own personal situation. The important thing is to obtain information in advance about the possible consequences.
- In the case of sole ownership, only one partner is entered in the land register as the owner and therefore has sole decision-making authority over the property. Moreover, in this case, only the sole owner is taken into account in the affordability calculation – the earned income of the second partner doesn’t count towards it.
- In the case of co-ownership, both partners are listed separately in the land register according to a predefined ownership quota. The equity contributed by each partner plays a role in the event of separation. This is relevant if pension assets from pillars 2 or 3 are used for the purchase. If, for example, one partner makes an early withdrawal of pension fund assets, the amount of this withdrawal must be documented in the land register.
- In the case of joint ownership, both partners are entered in the land register as owners with equal rights. The property belongs to them equally – even if one partner has invested more equity than the other. According to this model of ownership, the partners are closely bound to each other and can only decide to sell their residential property if they both agree.
The article “What cohabiting couples should know” contains further information on this topic, as well as a helpful checklist on joint real estate ownership for cohabiting couples.
After buying a property: how do you maintain its value – and protect your financial investment?
Experts assume an annual loss in value of the property of one to two percent. Value-preserving measures, i.e. repairs and refurbishments, make sense to counteract this. Well-maintained properties that have been renovated in keeping with the times fetch higher resale prices on average. Furthermore, value-preserving measures offer the advantage of being tax-deductible.
This article gives you recommendations and tips on how to renovate property and save taxes at the same time. For more information on how to save taxes with real estate thanks to careful planning, see this article.
Value-enhancing investments pay off too
In addition to maintaining value, targeted investments, also known as value-enhancing measures, are another way to increase the market value of a property. They must be carefully targeted because not all investments increase value. Sensible value-enhancing measures can include: increasing the living space, making certain adjustments to the floor plan or improving the standard of finish. In contrast to value-preserving measures, value-enhancing measures are not generally tax-deductible.
They nevertheless offer a tax advantage, because the real estate capital gains tax due when a property is sold will be reduced if you can provide proof of the investments made. Although value-enhancing measures cannot usually be deducted from taxes, there is one important exception: investments that help save energy. Moreover, depending on the canton and municipality, these investments may be subsidized, making them doubly attractive. Read more about how you can increase the value of your property and save taxes at the same time in this article.
Selling property: how can you get a good price?
If you are thinking of selling your property, you should know its market value. It’s worth consulting experts to assess this properly. If you underestimate the market value, you may miss out on a lot of money. However, if you overestimate it, you could scare off potential buyers and you risk not being able to sell the property. That’s why it's vital to estimate the optimal price. There are two ways to do this:
- For luxury and collectors’ properties, it is advisable to carry out a valuation of the substance of the property, in which a professional valuer gets an idea of the state and location of the property in order to establish the market value.
- For all other real estate, hedonic appraisal is common, where property value is determined based on comparable properties that have recently been sold.
There are also tax aspects to consider when selling real estate. If you want to sell your property, you as the seller must pay what is known as real estate capital gains tax. In simplified terms, tax has to be paid on the difference between the purchase price and the selling price. The period of ownership is taken into account in the calculation: the longer you keep the property, the lower the tax. You should be aware that there can be large cantonal differences. For further measures to optimize real estate capital gains tax, read this article. Notary fees and, depending on the canton, real estate transfer tax, are also payable on the sale.
Separation, divorce, death: what happens to property?
Precisely because joint real estate ownership entails rights and obligations, it is important to be prepared in the event of an unforeseen event. This will ensure that you don’t end up having to deal with ownership issues at what is usually an emotionally difficult time. In the case of separation, in addition to custody of the children, the joint property is often a cause of conflict.
Can one of the partners buy out the other and take over the house or apartment? If this is not the case, there is the possibility of selling the property and dividing the proceeds between the two parties according to a certain pre-defined ratio. There are also different options for mortgages. Find out what they are in this article.
Real estate ownership is a complex subject with many aspects to consider. Would you like to buy a property, and do you need advice on the subject? Are you a property owner and do you want to learn more about how to preserve its value while saving taxes at the same time? Or are you thinking about selling your property? We will be happy to help you.
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