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From owner to sustainable investor: Shaping the future with the sale of apartment buildings
Buy, Owner, Real estate market, Sell
20 April, 2023
Buy, Owner, Real estate market, Sell
April 20, 2023
Multi-family houses are a profitable investment in Switzerland, but why do owners:inside sell them? The reasons are varied and can range from financial and sustainability challenges to a desire for lifestyle change.
As homeowners:in, we often think about the value of our properties and our future living space. But what if we look at our multifamily properties not just as a place to live, but as an investment opportunity for the future? In this regard, the sale of multifamily properties can not only bring financial benefits, but also contribute to sustainability and usher in a new era of investing.
Why do owners sell their apartment building?
Owning a multi-family house (MFH) can be a profitable investment for homeowners in Switzerland, as it provides them with a steady income stream from passive income. Nevertheless, there are various reasons why owners decide to sell their apartment building. These reasons can include financial challenges, a desire to downsize before retirement, preparing for an estate split, changing lifestyles, legal issues, lack of modernization or changing market conditions.
If, for example, one has difficulty covering the monthly expenses for the apartment building due to unforeseen costs or declining rental income, the sale offers an opportunity to quickly obtain liquidity. A change in lifestyle, such as a move to another region, may cause homeowner:s to also want to relocate their real estate portfolio to their new residence. In this case, the sale serves to release financial resources to make a new investment.
However, one point should not be lost sight of: Tenants are becoming increasingly demanding. The property should bring a timeless design, be as energy efficient as possible through the use of renewable energy, and be equipped with environmentally friendly and resource-efficient materials. The list of requirements is long. Selling the property could be an option to dispose of the property while making a positive contribution to the environment by having a new owner:in make sustainable upgrades.
The real estate industry is in a state of flux, owners:inside inevitably have to deal with their portfolio and make important decisions. But one factor is too rarely discussed: Energy refurbishments.
How can owners make their portfolio fit for the future?
The real estate industry is in a state of flux, owners:inside inevitably have to deal with their portfolio and make important decisions. In addition to all the considerations surrounding interest rates and real estate prices, one major factor with serious consequences is all too often forgotten: the need for energy-efficient renovations, which sooner or later will affect most owners and can be associated with high costs.
This is because the Paris Agreement requires Switzerland to become climate-neutral by 2050 – to achieve this goal, 3 percent of buildings would have to be renovated each year to make them more energy-efficient. However, the rate has been below 1 percent for years. The refurbishment backlog is thus getting bigger and bigger, and this at a time when planning certainty is hardly possible. This can be both a financial and time risk, especially if the owner or proprietor does not have the necessary expertise.
What does this mean for real estate owners in concrete terms?
If a property does not meet the required conditions by 2050, this means in the worst case that the property’s operating license will be revoked – i.e. it may no longer be rented out or lived in. Thus, there is a compulsory investment backlog in buildings older than 15 years – the extent of this backlog is quite individual: from the insulation of the building envelope, to the basement ceiling, windows, doors, roof, a heating optimization, to a ventilation system with coupled heat recovery. Increasing demand, as well as the limited capacity of service providers, will then inevitably lead to refurbishments becoming even more expensive.
For owners, this means in concrete terms that action must be taken. What must be done to achieve a particularly high efficiency class for the property? What costs will I incur? What funding programs might be eligible? Knowing your own property(ies) in detail and knowing which investments are indispensable is the be-all and end-all.
Is renovation worthwhile?
Investors usually want to profit from their investment in a multifamily property as quickly as possible.
Sellers can make their property more attractive through energy-efficient renovations and sell it “turnkey”. But not every modernization project is worth the cost. n order to ensure a long-term increase in the value of the property, the following aspects, among others, should be taken into account in the decision-making process:
How does the renovation affect the value of the property?
How long will the renovation take?
Are there comparable multifamily properties in the area in terms of condition and sales price?
Put up with the cleanup expense or accept a lower purchase offer?
There are many investors targeting properties in need of redevelopment, but not every property is a worthwhile investment. In addition to the costs of necessary repairs, the loss of rental income during the renovation work, for example, must also be taken into account.
Does your property need renovation? Renovate or sell? Learn more in our blog!
In the field of multifamily housing and real estate investment, it is important to emphasize that the sale of MFHs is a common practice. As shown, the reasons are manifold. In this context, the sale can act as a plausible solution. A costly and energetic refurbishment can be avoided due to lack of know-how or the associated risk by selling the property in its as-is condition and purchasing a new one in a “better” location. This can promise a higher return in the long run and make leasing easier, but it can also mean a longer search for the right replacement investment.
When buying and selling MFHs, as well as possible renovations, it is important to make individual decisions and adapt to the circumstances. A comprehensive market analysis and careful review of real estate market requirements by an expert can help make informed decisions that ensure long-term success and profitable returns while shaping the future living space.
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All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.
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