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Useful guide to real estate investing

Since ancient times, the concept of homeownership has been one of the basic needs in the lives of individuals and families in general; today as in the past, it is an ideal haven for assets when you want to protect your capital.

Market uncertainties and glimpses of the financial storms that rage in other parts of the world really have little impact on such a stable and balanced market as that of real estate in Switzerland.

The country’s migration and diplomatic policies give a rosy and always thriving outlook even when storm waters are close to its borders, thus making an investment in property one of the wisest, guaranteed choices for the future.

How is it possible to make such an important investment according to your budget with possibilities of long-term gain?

Doubtless we must draw on our own financial resources, but before moving on to the details, it is wise to clarify some key points of Swiss legislation for real estate purchases.

1) The condition of “Equity” and how to obtain it.
One of the fundamental conditions for the purchase of a property, whether a single family home or an apartment, or something even more substantial, is to have access to an amount of your own funds also known as “down payment”.

The term “down payment” is defined as the amount of money that the would-be investor must immediately place at the time of purchase to guarantee the transaction; this is the minimum accepted by the Swiss banking system and includes only the bare value of the property (excluding the costs of transfer of ownership).

The latest cantonal rules state that the buyer must immediately have (or have access to) 20% of the purchase price of the property in question. The basis for this condition is the principle of sustainability of a loan that covers the rest of the transaction amount as well as the concept of citizen commitment to the transaction and to its success.

However, is the actual equity a limit to their ability to purchase?

This system may seem obstructive for those who do not have immediate availability of funds or would like to consider a substantial real estate investment that is forward-looking and not immediate. However, a variety of down payment acquisition measures are available to a person.

Access to the “Cassa delle Pensioni” (Pension Fund)

According to the Ordinance on the Promotion of Home Ownership (OPHO), Swiss nationals can request an early withdrawal on their pension fund (second pillar). However, the guarantee requires the house purchased to be used as a residence and inhabited by the applicant, who must still equity down payment of 10% of the property price.

Help from family members

To arrive at the capital needed for the property investment, family help can be a resource. This can take place in various forms, from direct donation, of course, to a real advance on future joint hereditary rights. At the time of reading of the will, the amount advanced will be deducted from the actual inheritance received to balance the situation in case of brothers or sisters, maintaining the effective equality among the heirs.

Securities, savings and valuables

The Swiss banking system takes into account the availability of financial securities and shares, which can be used to achieve the value of equity capital necessary to set the investment mechanism in motion.
Other useful forms to reach the minimum amount are life insurance and 3a accounts (third pillar), available as security or as an additional guarantee for obtaining Swiss bank funding.
Sale and subsequent monetization of valuables (jewellery, gold and silver bullion, etc.) and works of art is also a useful option to obtain the basic amount for the investment.

2) Advice on overall investment cost estimates
Once in possession of the necessary equity capital under the terms of the Act, it is time to come to terms with the overall concepts for a financial plan that allows property investment on the one hand and personal finance stability on the other.

The first thing we need to be thinking about is the full investment cost. As stated, the law requires you to have at least 20% of the value of the property that you want to buy. The latter, however, has additional costs: property ownership transfer and general expenses related to the Canton where the transaction takes place, notary fees, taxes and property taxes. If the investment property will also be your new residence, it is a good idea to also consider the various costs involved in the move, which will depend of course on the amount of people, furniture and anything else that you will transfer.

Therefore, direct planning of future earnings becomes essential regarding the sustainability of the instalments of the loan and expenditure that a property involves.

Having said that, which is useful to forecast the overall amount of sustained effort for the investment, it is now time to move on to examining the various mortgage possibilities to obtain the rest of the capital needed to purchase the property.

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