Are buy-to-let properties still attractive for private investors?

The real estate market for private owner:ins of rental properties that are not owner-occupied (buy-to-let) has changed due to rising interest rates and ancillary costs. Until the end of last year, costs for owners were lower than rental income in many regions, but this positive constellation is no longer the case everywhere.

What is buy-to-let?

The real estate industry offers a variety of investment opportunities. In recent years, buy-to-let has gained a lot of popularity and about 20% of mortgages were taken out for this purpose. In buy-to-let, a property is purchased by private investors with the aim of renting it out rather than occupying it themselves and generating a regular source of income or wealth accumulation. In the previous market, the owners were able to profit twice; on the one hand through passive income, and on the other hand through the increase in value of the property.

Risky real estate investments

This previously popular and tempting way of investing in “concrete gold” for the purpose of increasing its value also involves risks and challenges, despite the advantages. This is especially true in the market we find ourselves in today. In addition to rising interest rates, inflation has also led to above-average increases in the costs of property-related expenses such as maintenance, repairs and renovations. Due to the current market situation, the costs thus exceed the return and the investment becomes a cost trap.

Cost example of a buy-to-let investment

Financial risks associated with buy-to-let investments

Furthermore, the purchasing power of tenants:inside decreases and not every unit can be rented at a profitable premium. This can lead to vacancies, especially in rural areas. Complicating matters are issues such as energy retrofits, which require matching funds to meet the required standard. Owners who get into financial difficulties often have no choice but to sell.

The higher costs make buy-to-let unattractive

The boom in buy-to-let properties is over for now. The era of record low interest rates, which favored the purchase of apartments as investments, no longer exists. The most significant cost items of a property – mortgage interest (2 – 3 %), ancillary costs, management costs – have risen markedly, which makes the prospect of buy-to-let, especially as a new investment, considerably more expensive and ultimately unprofitable. Increasingly, investors are asking how and whether they can transfer rising costs to tenants, but legally this is likely to be a difficult undertaking. This is particularly the case as the purchasing power of the population tends to fall as a result of inflation.

Price increases in the city force a rethink

The market situation for real estate investments varies from place to place and depends on many factors. In the countryside, it is usually cheaper to buy a property, and the prices are also lower. On the other hand, prices, which most Swiss people can no longer afford, continue to rise rapidly in the city. Nevertheless, in many regions renting is no longer more expensive than buying a property, so the population is increasingly choosing to rent rather than buy. The forecasts for the long-term outlook could not be more different at present. While some are talking about a “soft” landing, others are predicting rather gloomy prospects for the coming years. It remains to be seen.

Buy-to-let comparison

Conclusion

In principle, buy-to-let is now only worthwhile in a few cases and for people with sufficient capital and staying power. An investment property must remain affordable for the owner even at higher costs, whereby the success of this is also defined primarily by the location as well as the quality of the property. It is important to note that factors vary from market to market and that buy-to-let may remain an attractive investment option in some markets. A lease-purchase, on the other hand, seems particularly attractive for the younger generations and people without large financial reserves. It is therefore worthwhile to seek advice from a local real estate expert before investing in a property as.

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