Rate of return

When is an investment property worthwhile?

You have purchased a property you do not live in, using your own funds in combination with a mortgage. How can you calculate whether your investment will really pay off in the long term?

15 Dec 2025

Mario Stoppa

Content:

Is your investment property worthwhile?
Sample calculation of the return on a multifamily unit
Gross, net, equity and net-net return
Legal guideline: What is considered a reliable return?
Conclusion: An investment property is considered worthwhile if the return covers the ongoing costs and is higher over the long term than the cost of the financing.

A woman analyzes the profitability of an investment property on a tablet in a modern office. — Carefully assess the investment property: If you invest in real estate, you should regularly analyze its profitability.

An investment property can be an attractive way to build wealth – but when is such an investment really worthwhile? This question is asked by many who are thinking about purchasing a multifamily unit or other rental property. If you own a property that you rent out, you want to ensure that your investment pays off in the long term. But how can you reliably assess its profitability?

In this article, we explain when an investment property is worthwhile, how to calculate the return on investment and which factors are crucial for a successful investment.

Imagine you have bought a multifamily unit with eight apartments for CHF 5 million. If you sell the property someday, you will want to recoup at least the price you paid for it. In practice, the current market value of your property is influenced by various factors – such as the surrounding land, the condition of the building, rental income and the general market environment.

From a business perspective, the difference between the purchase price and the current value is also crucial as it shows whether your invested capital has increased. The current market value thus serves as a starting point for assessing profitability.

Even more important for your investment property is the actual value of the unit in terms of income. This is measured based on the income value, which in turn depends on the sustainable net rental income and the capitalization rate.

The actual value of your home depends on who it is being determined for:

For buyers and sellers, the market value – the estimated price that the unit could achieve in a sale – is what matters.
For banks as lenders, the income value is crucial, as it shows the net rental income the property can generate when all the apartments are rented out.

To realistically assess the profitability of an investment property, the current market value, rental income, vacancy rate and capitalization rate must therefore be considered together.

The regular income from your capital investment mainly consists of rental income and, where applicable, interest on accumulated reserves.

However, your multifamily unit also incurs ongoing costs. These include building and land maintenance, property management fees, insurance, capital costs and amortization. There are also taxes, provisions for future renovations and reserves for vacancies and rental losses.

So how can you reliably assess profitability – and when will an investment property really pay off? You can only get a clear picture of profitability by precisely comparing income and costs – and then deciding whether your investment property is really worth it.

Do you need advice regarding your investment property?

Whether regarding financing, renovation or sale, our experts can provide specialized individual advice.

Arrange a consultation

Sample calculation of the return on a multifamily unit

Now that we have explained the basics of how to assess profitability, we will present a concrete example to show you how to calculate the return on an investment property. The following example calculation illustrates the factors involved and how you can include them in your own analysis.

Multifamily unit with eight apartments
Rental income per apartment: CHF 2,200/month → CHF 26,400/year
Purchase price 2012: CHF 5,000,000
Inflation-adjusted 2022: CHF 5,035,000 (assumed)
Own funds: 35% → CHF 1,750,000
Borrowed capital: 65% → CHF 3,250,000
Cost of capital (interest on borrowed capital): 2% → CHF 65,000/year

The following table shows the income, expenses and reserves for the multifamily unit in our example. This way you can understand the individual factors of the return calculation and apply them to your own property.

Designation	Designation	Income in CHF	Income in CHF	Expenses in CHF	Expenses in CHF	Provisions in CHF	Provisions in CHF
Designation	Net rental income	Income in CHF	211,200	Expenses in CHF		Provisions in CHF
Designation	Administration¹	Income in CHF		Expenses in CHF	12,672	Provisions in CHF
Designation	Maintenance (CHF 1,000 apartment/year)	Income in CHF		Expenses in CHF	8,000	Provisions in CHF
Designation	Insurance	Income in CHF		Expenses in CHF	4,000	Provisions in CHF
Designation	Reserve for vacancies and loss of rent²	Income in CHF		Expenses in CHF		Provisions in CHF	4,224
Designation	Capital costs	Income in CHF		Expenses in CHF	65,000	Provisions in CHF
Designation	Taxes (lump sum)	Income in CHF		Expenses in CHF	10,000	Provisions in CHF
Designation	Provisions for renovations³	Income in CHF		Expenses in CHF		Provisions in CHF	50,000
Designation	Total	Income in CHF	211,200	Expenses in CHF	99,672	Provisions in CHF	54,224
Designation	Profit before provisions	Income in CHF	111,528	Expenses in CHF		Provisions in CHF
Designation	Profit after provisions	Income in CHF	57,304	Expenses in CHF		Provisions in CHF

¹6% of the net rental income/year

²2% of the net rental income/year

³1% of the purchase price/year

The net return on equity in this example is 3.28% (57,304 / 1,750,000).

The return is a key figure that shows how much profit you make in relation to your invested capital. It is an indispensable tool for evaluating the profitability of investments and comparing different financial assets.

Depending on the calculation method used, there are different types of returns, each highlighting different aspects of profitability. In the following, we introduce you to the most important types of returns and show you how they are calculated.

Gross return

The gross return shows how much income a property generates in relation to the purchase price. It serves as an initial benchmark for roughly estimating the profitability of a property, as it simply compares the annual rental income with the purchase price. Ongoing costs such as maintenance, administration or provisions are not taken into account, which is why the gross return only provides a simplified view of profitability. However, it is ideal for initially comparing different real estate investments.

Formula for calculating the gross return:

Net rental income / purchase price × 100

Example:

211,200 / 5,035,000 × 100 = 4.19% gross return

A gross return above 4% is generally considered attractive, especially with low interest rates.

Net return

The net return indicates how much return is left over after deducting all ongoing expenses. Unlike the gross return, it takes into account costs such as administration, maintenance, insurance, taxes and provisions.

Since the net return includes actual expenses, it provides a more realistic assessment of the profitability of an investment property. It is particularly useful for evaluating the profitability and comparing different investment opportunities.

Formula for calculating the net return:

(Net rental income – costs) / purchase price × 100

Example:

111,528 / 5,035,000 × 100 = 2.21% net return

Return on equity

The return on equity shows how much your invested equity has increased – in other words, the actual profit you achieve on your own funds. It is one of the most important key figures for assessing the profitability of an investment property.

Rented multifamily units (investment properties) are among the forms of investment that are often financed with a high proportion of borrowed capital. This so-called leverage effect can significantly increase the return on equity: You benefit from the income of the entire property, even though you have only financed part of the purchase price yourself.

In business administration, the term “positive leverage effect” is used when the borrowed employed increases the return on equity. The higher the proportion of borrowed capital, the stronger this effect. However, the leverage effect can also be negative: If costs rise or revenues fall, the leverage can be reversed. That is why a solid and well-thought-out financing structure is crucial to minimizing risk.

Formula for calculating return on equity:

(Net rental income – costs) / invested capital × 100

Example:

111,528 / 1,762,000 × 100 = 6.32% return on equity

The proportion of borrowed capital results in an equity return of around 6% – about three times higher than the net return.

Net-net return: pricing in renovations

The net-net return is an extended form of net return, which, in addition to ongoing costs, also takes into account provisions for future renovations. It thus provides an even more realistic picture of the long-term profitability of an investment property, as it includes the cost of maintaining the property’s value.

Even with careful maintenance, properties lose value over the years. After a few decades, a complete renovation is usually necessary to preserve the property in the long term. These costs are considerable and often go hand in hand with vacancies during the renovation, which is why it makes sense to set aside annual provisions for future renovations. As a rule of thumb, approximately 1% of the inflation-adjusted purchase price should be set aside annually to secure these long-term investments.

Formula for calculating the net-net return:

(Net rental income – costs – provisions) / invested capital × 100

Example:

Net income after costs: CHF 111,528

Provisions (1% of the inflation-adjusted purchase price): CHF 50,000

Dividend amount: CHF 57,304

Invested capital (own funds including incidental costs): CHF 1,762,000

57,304 / 1,762,000 × 100 = 3.25% net-net return

So far, the return in our examples has been calculated without assuming provisions. At first glance, 1% may seem small – but in relation to the total purchase price, it is a significant amount that considerably reduces the freely available return. This is exactly where the difference between the net return and the net-net return becomes apparent. Only by taking provisions into account will you get a realistic picture of the long-term profitability of your property.

To assess the profitability of an investment property, it is important to know the different types of returns. Each method illuminates a different aspect of profitability and helps you make an informed decision. The following overview shows the most important types of returns, the formulas used to calculate them and the results from our example:

Type of return	Type of return	Formula	Formula	Result	Result
Type of return	Gross return	Formula	Net rental income / purchase price × 100	Result	4.19%
Type of return	Net return	Formula	(Net rental income – costs) / purchase price × 100	Result	2.21%
Type of return	Return on equity	Formula	(Net rental income – costs) / invested capital × 100	Result	6.32%
Type of return	Net-net return	Formula	(Net rental income – costs – provisions) / invested capital × 100	Result	3.25%

Whether a multifamily unit is actually profitable as an investment property depends significantly on the return achieved. One of the most revealing methods for assessing profitability is the net-net return, as it not only considers revenues and ongoing costs but also provisions for long-term investments.

If your property – as in the example – achieves a net-net return of around 3%, it can be considered profitable. Such a return is competitive compared to other safe forms of investment, such as government bonds or fixed deposit accounts. In addition, real estate as a tangible asset has the advantage of typically being protected against inflation and can increase in value over the long term.

In addition to calculating the net-net return, the financing structure is also crucial. How does the return change if you fully finance your property yourself, i.e. acquire it with 100% equity?

In this case, the net-net return is reduced because there are no financing costs that could be claimed for tax purposes. In the example, the return drops to 1.14%. This may seem less attractive at first glance, but there is a crucial advantage, which is that the risk from borrowed capital – such as from interest rate changes or repayment obligations – is completely eliminated. For security-oriented investors, this can be decisive.

Net-net return with complete equity financing

Calculation formula

(Net rental income – costs – provisions) / purchase price × 100

Example:

Dividend amount: CHF 57,304
Purchase price: CHF 5,035,000

57,304 / 5,035,000 × 100 = 1.14% net-net return

The net-net return is an indispensable tool for realistically assessing the profitability of an income property. It provides a reliable basis for comparing the profitability of your property with other forms of investment and making informed decisions.

According to the Federal Court (ruling 4A_554/2019), a net return of up to 2 percentage points above the reference interest rate – provided the latter is 2% or less – is considered allowable.

With a reference interest rate of 1.25% (as of November 2025), the maximum allowable net return is therefore 3.25%. This requirement is particularly relevant in disputes over rent as it defines the framework for “reasonable returns”.

For new buildings, the gross return is generally used in the first ten years, whereas for older buildings, the net return is used. However, there is no standard calculation method.

The Zurich Homeowners Association recommends the following as a guideline:

Purchase price: Invested capital is the decisive factor. For new buildings, this corresponds to the actual land and construction costs; for existing buildings, this corresponds to the original purchase price plus value-enhancing investments, adjusted for inflation in each case.
Rental income: Gross and net return are generally calculated without additional costs.
Permissible return: Until 2020, the maximum allowable net return was 0.5 percentage points, and the maximum allowable gross return was 2.5 percentage points above the reference interest rate. Since 2020, the upper guide value for the maximum allowable net return has been 2 percentage points above the reference interest rate, provided the latter is 2% or less.
Costs: Expenses such as operating costs, administration, taxes, amortization and mortgage interest are taken into account as reducing income.

These guidelines ensure transparency and comparability – both in internal return assessments and in communication with authorities or tenants.

The financing of an investment property is a decisive factor in its profitability. Rising interest rates can increase capital costs and thus significantly reduce returns. In particular, the return on equity is heavily dependent on financing costs. Even an increase in the mortgage interest rate by just 1 percentage point can significantly reduce this.

Therefore, a mortgage for an investment property should be chosen so that it remains affordable even if interest rates rise. A solid financing strategy is crucial to ensuring a stable return in the long term.

Example:

If interest rates increase from 2% to 3%, the annual capital costs will rise from CHF 65,000 to CHF 97,500. This reduces profits accordingly, which depresses the net return if rents remain unchanged.

However, the UBS Chief Investment Office does not expect any significant interest rate hikes in the short term.

The profitability of an investment property depends not only on rental income, but also on how efficiently you manage your costs and plan for the long term. With the following three strategies, you can specifically adjust the variables to increase the return on your property:

Increase rental income

In Switzerland, rent increases are limited by law, which means that you cannot adjust rents arbitrarily. Without value-enhancing investments, such as renovations or modernizations, it is usually not possible to improve the return solely through higher rents.

However, there are still ways to optimize rental income:

Value-enhancing renovations: Modernizations such as kitchen or bathroom renovations can increase the attractiveness of your property and thus justify higher rents.
Additional sources of income: Consider whether you can rent out additional amenities such as parking spaces, garages or storage rooms.
Optimizing tenant selection: Long-term leases with reliable tenants can reduce vacancies and thus stabilize income.

Even if the possibilities for increasing rental income are limited, targeted measures can help to increase the profitability of your investment property.

Reduce costs

Efficient cost management can noticeably increase your returns. A key factor is the cost of property management, particularly the fee for property administration, which makes up a significant portion of ongoing expenses. Someone who takes on administration themselves can – as shown in the example of this article – save up to CHF 12,672 annually.

Provisions for rental losses (CHF 4,224 per year) can also be waived if your financial situation is stable. Overall, this results in potential savings of CHF 16,896 per year.

Comparing mortgage interest rates is also worthwhile: A cheaper mortgage for your investment property can further improve the return on equity.

Reduce provisions

Provisions for renovations or maintenance are important to maintain the long-term value of your property. However, setting these provisions too high reduces short-term profits and lowers the disposable return.

Adjusting them to more realistic values – based on the actual condition of the property and planned investments – can yield an additional 0.5% to 1% return, depending on the property. It is important to plan carefully so that you can continue to cover future investments such as major renovations or modernizations.

Tip: Regularly review your provisions and adjust them to current market conditions and the condition of your property. This way, you avoid unnecessarily high provisions while ensuring that you are prepared for future expenses.

Looking for the right financing for your investment property?

Start your financing request for your investment 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.

Start your financing request now

An investment property is considered worthwhile if the return covers the ongoing costs and is higher over the long term than the cost of financing. With careful planning, realistic calculation and a well-thought-out financing strategy, you can secure the profitability of your property in the long term. Real estate also offers the advantage that, as a tangible asset, it is generally protected against inflation and can increase in value over the long term.

Remember: A smart investment in real estate is not just a question of numbers, but also of the right strategy. With the right planning and foresight, you can turn your income property into a successful investment!

Make an appointment Our experts on hand for you

Questions about our offerings?

Branches Visit a branch near you

Visit us at a branch

Disclaimer

This publication is for personal information purposes only within Switzerland and is not to be understood as a recommendation, offer or solicitation of an offer for investment or other specific products and services. It is not intended to form investment, legal or tax advice and should not be used as the basis for financial decisions. Before making a decision, you should obtain professional advice.
All the information and opinions contained in this publication come from reliable and trustworthy sources. Nonetheless, UBS does not accept any contractual or implied liability for any incorrect or incomplete information. The views of non-UBS authors are their own opinions and do not necessarily reflect the views of UBS AG and its affiliates. Complete or partial reproduction without the express consent of UBS is not permitted.

Content:

Do you need advice regarding your investment property?

Sample calculation of the return on a multifamily unit

Looking for the right financing for your investment property?

Disclaimer

Help

Products

Sections

About us