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Investing in real estate
If you want to invest in income property (also called investment property), we advise you to check a few points before making a purchase. Not all properties generate equally good returns.
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Investors acquire income properties to generate profits – for example, through rental income or appreciation over time. The owner does not use such properties themselves but rents them to third parties.
Anyone wanting to invest in an investment property should carefully examine various factors before making a purchase, including:
Not all properties automatically generate high returns. The achievable profit depends heavily on the individual characteristics of the property and on market conditions.
Another important step is deciding what type of investment property is right for you. For example, the following options are available:
In addition to the type of property, available capital also plays a decisive role. Consider how much equity you can contribute, and which financing options are available for you. Thorough planning and analysis prior to a purchase are essential to an informed decision and to benefit from your investment in the long term.
The purchase of an income property is a direct investment in real estate and is characterized by being rented out to third parties. As an owner, you generate income by renting out or leasing the property. In order for a property to generate regular income, it must be easy to rent out in the long term. Typically, the following types of properties are available:
Multifamily houses with at least three residential apartments are considered classic investment properties. Investing in such a property requires a relatively high budget, but it can be worthwhile: In the past, multifamily houses often generated attractive returns.
Advantages:
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Commercial properties such as office and retail buildings, hotels, restaurants and industrial buildings also offer interesting investment opportunities but require a good understanding of the respective market – especially in terms of location, industry and usage concept.
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Investments in income-generating properties – whether apartment buildings or commercial real estate – offer numerous opportunities but require careful planning and in-depth market knowledge. With the right strategy and professional management, they can generate stable and attractive returns over the long term.
Mixed-use properties that include residential, commercial and office spaces are also suitable as investment properties. Due to the increased administrative and coordination effort, legal requirements and different rental rights, you need a certain level of experience. A significant advantage of such properties lies in diversification: By combining different types of use, sources of income can be specifically managed and the risk of vacancies can be reduced. This diversity makes mixed properties an attractive option for experienced investors.
The demand for small apartments and micro-apartments remains high in Switzerland, especially in urban areas. For investors with a limited budget, such properties offer an interesting opportunity to get into investing. Although the price per square meter of micro-apartments and one- to two-room apartments is relatively high, stable demand from students, commuters or single occupants often compensates for this. However, the following applies: The smaller the housing unit, the more sensitive tenants are to quality and furnishings. This can lead to higher maintenance costs.
Regardless of the type of property, purchasing an income property offers attractive opportunities but also entails specific risks.
Our experts not only help you choose the right mortgage, but also provide comprehensive advice on financing, affordability, tax aspects and long-term planning.
Now that you better understand the opportunities and risks of the various income properties, we will show you the most important factors that you should check before concluding a purchase agreement. These factors have a significant impact on the level of return.
The goal of investing in income property is to pay off the purchase price as quickly as possible through monthly rental income. A key criterion in the evaluation of income properties is therefore the ratio between purchase price and income.
This “rental multiplier” indicates how many times the annual net rental income is included in the purchase price – in other words, how many years it theoretically takes for the investment to pay off through rental income. The lower the multiplier, the more attractive the property is from a return perspective. A high value, on the other hand, indicates that the property is relatively expensive in relation to its yield. In Switzerland, the average rental multiplier is currently around 25.
Example 1: Rental multiplier
Rental multiplier: 4,500,000 / 180,000 = 25
Gross yield also provides an initial indication of a property’s earning potential. It is calculated from the ratio of the annual net rental income to the purchase price without taking additional costs into account. The purchase price is divided by the rental income.
Example 2: Gross yield
Gross yield: (180,000 / 4,500,000) * 100 = 4%
However, for a more realistic assessment, the net return should be calculated. The ongoing administrative, operating and reserve costs are deducted from the rental income. These vary depending on the property, condition and management – often calculated at 10–20% of the rental income.
Example 3: Net yield
Net yield: (180,000 – 27,000) * 100 / 4,500,000 = 3.4%
When buying an investment property, familiarize yourself with the year of construction and the structural condition of the property beforehand. An on-site visit is essential. In principle, a distinction is made between new buildings, used properties and old buildings:
If you have little or no expertise in the technical construction field of real estate, it is advisable to consult a specialist. This way you ensure that you make an informed decision and minimize potential risks.
Does your desired property have a balcony but no garage? Or could additional living space be created by expanding the attic? Such additions and modifications can significantly increase the value of the property. However, these options should be carefully examined in advance. Installing an elevator or converting a former office building into residential space are also options that can increase the potential of a property. The prerequisite is that such measures are legally permissible and economically sensible. It is essential to clarify these issues before purchasing, as they have a direct impact on the return on investment and the development potential of the property.
The location of the income property is a decisive factor for its value retention and yield. An assessment distinguishes between micro-location (immediate surroundings) and macro-location (overarching location quality).
Micro-location:
This refers to the immediate surroundings of the property.
For residential real estate:
For commercial properties:
A good micro-location noticeably increases the rentability and thus the stability of income.
Macro-location:
The macro-location refers to the attractiveness of the region or municipality and is influenced by various factors, including:
When assessing whether an investment property is in a good location, it is worth taking a close look at the development potential of the surrounding area. For example, if a new highway connection or a major infrastructure project is planned, this could enhance the location – or, conversely, lead to losses due to increased noise pollution.
Anyone looking to invest in an investment property should also inform themselves about the current rent level, vacancy rate and housing demand in the respective region. In good locations – especially in cities or economically strong regions – vacancies are usually lower, and rental income is more stable or even higher.
Last but not least, you should check whether the property is located in a hazard zone, for example, in an area prone to flooding or landslides. Such risks can significantly reduce the market value and should be taken into account when making a purchase decision.
The local rental price level is also a crucial factor in assessing the achievable return. Not only is the current market rent relevant, but also the price of comparable properties. You should check whether the rent for the investment property to be purchased corresponds to the level of other properties in the municipality. If the rent is below the usual level, this has a direct negative impact on the return.
In some cantons, property and transfer taxes also apply. Anyone wanting to buy a property should find out about possible tax burdens at an early stage – especially if the location has above-average taxes.
Besides the current market rent, the future development of rents is also important. You should check whether rents can be adjusted to the current market rents when the tenant changes. The same applies to renovations: Can higher rents be achieved through measures such as window insulation? Or is rental law heavily regulated, meaning adjustments are only possible to a limited extent? These factors have a direct impact on the return.
For sustainable profits, it is not only the rent that is decisive, but also the tenant structure. If the income property is already rented out, information should be obtained in advance and rental agreements reviewed. Important questions include:
A clear overview of the target audience, contract durations and potential risks is vital – especially for commercial properties. The goal should be to conclude long-term leases with reliable parties in order to minimize administrative effort and thus costs.
Regardless of whether it is a multifamily house or a commercial property: To finance investment properties with a mortgage, you must contribute at least 25% of the purchase price as equity. As a rule, capital from pillar 2 and pillar 3 may not be used. Aspects such as amortization and affordability should also be carefully examined.
Start your financing request for your income property directly online – free of charge and without obligation. UBS key4 mortgages provides you with a quick, personalized quote tailored to your plans and financial capabilities.
If you take the above factors into account and carefully examine the income property, investing can be successful in the long term. It is crucial not only to keep an eye on the purchase price or the expected rental yield, but also on aspects such as the quality of the location, the tenant structure, the building condition, the financing model and the tax framework.
If you are unsure, we advise you to seek expert advice at an early stage. This protects you from wrong decisions and unexpected costs and will increase your planning security – an important step in a successful investment.
Arrange an appointment for a non-binding consultation or if you have any questions, just give us a call.
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