Looking for advice on what to do with 300K CHF

[maxamir]

So, my partner and I have saved a little more than 300K, not including our pensions. We have decided that this NEEDS to be the year that we do something with this money. The reason why we have this cash is because we were thinking about buying a house. Now, I am thinking that buying might not be the smartest in the long term. If you had this cash, and in purely financial terms, what would you do with it. Some info about us:
1. Combined income (before taxes): ~210K CHF
2. No debt
3. No investments outside VIAC with our 3a
4. We live in Zurich (city)
5. Two kids
6. We are in our late 30s

My partner wants to buy a house with ~250K CHF (~1M house in rural place) and leave ~50K CHF liquid cash in case of emergencies. I would rather
1. Get something small in the range of ~700K CHF, closer to a city. Down payment: ~150K CHF. Idea would be to rent the place since it would be too small for us. I assume we can not buy anything above 2.5 rooms AND close to a city.
2. Invest ~100K CHF. Probs long term investment
3. Have ~50K CHF cash for emergencies.

Does this sound good? How would you invest/buy?

Thanks!

Edit to add: Thanks for your feedback! I’d like to mention that we don’t necessarily want to buy a place but I mention it since it’s two of the possibilities that we have been looking at. Would investing all the money, or at least half, be better than buying property?

Edit 2 (if anyone is still reading ): my partner says that I left a very important point, which is that the house in a rural place is the parents’ house so we should, in theory, get a fair price (we would not be competing with others so bidding and the risk of the price going up is non existent). The parents would like to sell at the market price, so no discount.

 

[pekka]

@maxamir Go with the first option. You don‘t get 20% mortgages for investment objects. Some banks want up to 50% based on the object. Also you would pay a lot of taxes, since the rent you gain also adds up to your income.

Houses and flats in switzerland are generally (imho) overpriced and most banks straight up tell you, that the asked price is more than banks would offer. If you wanna buy, buy to live in it. Especially in the ZH area, it is just really expensive and you need to have a strategy what happens if the rates go up, can‘t just go and demand more rent.

 

[smta276603]

@maxamir Interesting question, OP.
We are also thinking of what to do with our money, although we have a substantial part invested. By the way, I find it a bit surprising to have 300k with no investments: I am more tolerant to risk, but most of my wealth is invested, not cash.

Regarding houses, you should be aware that at the moment Zurich has one of the largest, possibly the largest, house price/rent ratio in the world. A house or an apartment cost approx 400 times the rent for a similar unit. That’s huge. Most healthy real estate markets have this number at 150-200, 250 max.

This means that the return from renting a place is very very low. The only reason people and funds buy houses is the hope that the prices will keep going up. Which can be true, but I think you should be aware that at the moment a house in Switzerland (Zurich in particular) is not a fixed income when you rent it, it’s a bet on future gains.

Buying for living is a different thing: you pay for the security of the place, for the feeling of owning it, for the freedom to adapt it to your needs when things change in your family.

 

[onewayjesus]

@smta276603 Word

 

[dusts]

@maxamir People here will say throw most of it into ETFs. It's like their mantra.

 

[jjmaleyscw]

@dusts You can also pick and choose stocks if you know you can beat the market. I don't.

 

[kevin__huang]

@maxamir Firstly, well done on saving 300K on a 210 income with kids in Zurich.

Anyway: If you want to buy a non-primary residence, you will need to put in at least 35%, probably 40% as deposit. Hence, 150K deposit gets you a place max 400K. Unless you want a garage in Zurich, this will not work.

Secondly, what do you want long term? I am not really understanding that from your post. You want to do something with your capital, but you don't know what?

Focus first on identifying what you want for your family. Personally, we put our 300K into a house in TG, and I love it. I love having our own home and space for the family. With Switzerland's population ever increasing, owning a little piece brings a lot of happiness and security. I have seen too many friends get thrown out of flats in Zurich because the owner wants to sell/knock it down/build etc.

 

[ryantheirish]

@kevin__huang Thats not true. Regulations says min 25% downpayment. 1. Grade Hypothek covers 66% and then you can take for the rest (so up to 19%) a 2nd grade one where you also have to pay back the hypo not just the rates

 

[kevin__huang]

@ryantheirish When I bought a second property, the bank wanted at least 40% as a downpayment. Perhaps another bank would be more flexible.

 

[michunt]

@maxamir if you get 3.5% rental yield, 0.9% maintianance, a 2% mortage and 20% downpayment, your return would be:

(3.5%-0.9%-2%*0.8)*5=5%

You will also have appreciation that beats inflation on average by 0.9% per year (yes it was more in redcent year, but historically I think it was inflation+0.9%) and your mortage will loose value to inflation, this can increase your return to a bit above 10%.

On the downside you have to spend time finding a renter and managing a renter. That time has value to, since it is work. You will also have to pay the mortage down by 1% per year. This means in the calculation above, your cashflow would be exactly 0 and all the return would only be accessible once you sell (and heavily taxed)

Compared to investing in an ETF it has probably a lower expected return (when you subtract the value of your work), but a bit less volatility.

 

[jjmaleyscw]

@maxamir Just rent and invest in liquid, e.g stocks. You will be far richer in a few decades. That is, if you stay in CH.

 

[josephelizabeth]

@maxamir I would not put anything with that money on real estate in Switzerland but that’s just my personal take.
What I would do is some investment plan in stocks/ETF.
To do that, you would first do your budget (from an incomes/expenses perspective, not accounting for your 300k), to see how much you can realistically invest per month with salaries.
Then, you would select a reasonable timeframe to invest on top of it the 300k. Like 2/3 years. Make it 30 months to simplify the example. So you would invest whatever you budgeted (ie: 2k) + 10k per months for 30 months.
Now, on what? If you want the easiest with little time required, ETF are your only reasonable option.
Personally I’m not that reasonable so what I do is a mix between ETF (Nasdaq etc) and individual stock picking when I feel like there’s an opportunity (ie: lot of stocks lost 50% in value for no good reason at the start of the pandemic, multiple time over… which I used to do multiple 80%+ gains in weeks). Of course if you go that route you’re taking more risks, but since you would not invest all capital at once, and as long as you stay away from options, you should be ok. Important stuff here is to commit and treat every investment as lost money, ie: I took some Meta stock when it crashed stupidly fast to 200, realizing this was clearly an over reaction from the market. Although I was expecting a very quick rebound, I did understand that it could actually be a medium term investment, and effectively I first lost like 50% before I made it back. Now the stock is at 473, so the strategy was fine, but it’s very easy to mess it up and lose a lot if you don’t commit to your plan).

As far as the 50k you intend to keep for emergencies, I don’t really get it. What emergency exactly are you planning for?
It makes sense to have your health insurance franchise available in cash (so maximum 3k per adult and like 300 per child would be 6,6k), I don’t see what else?
I think it does not make sense to hold 40k+ with no return while you can expect it to grow 6/8% year on year (and with cumulative interests) with minimal risk in the market. Should this emergency materialize, is it truly that urgent that you cannot sell a bit of stock, or better yet, take a loan against your stock?

 

[robbinson]

@maxamir Buying for renting means you would pay a higher mortgage rate so that will eat into the ROI of the apartment. I was in a similar situation two years ago, we decided to buy the house and even with higher interest rates, we're paying much less than it would cost us to rent the same place. One more pint to consider is that real estate appreciates quite quickly in some areas. In two years or house has appreciated about the same amount we put as downpayment. If we were to cash out, we would be looking at almost doubling our initial investment. I would re-consider buying a property for living but that's just me. Good luck with your choice

 

[megan89]

@robbinson Good info, but it's worth noting that if you did this, you'd get hit hard by capital gains taxes. They go down with time but only reach the minimum after 20 years in Kanton Zürich. Below two years I think you even pay a speculation penalty. They start at 40%.

 

[robbinson]

@megan89 Yeah that tax is crazy high but our end goal is to live in it. It's just comforting to see that if for a reason we decided to sell, even paying the taxes would still yield a very healthy profit.

 

[maxamir]

@robbinson Did you buy in a city or a rural area? The place/house my partner was looking into buying is in a Dörfli in Aargau. I’m looking into small cities surrounding Zurich.

 

[robbinson]

@maxamir Small town. City for a house or appartment the same size would have been en extra million .

 

[cgomez]

@maxamir Travel and find a nice place in the world somewhere where you could imagine to retire. If it is Greece, Portugal, Spain or Turkiye (3-4 hrs flight) or if you dont mind living “somewhere else” it could be on the seychelles, in Mexico or Vietnam or Thailand.
Your money will buy you are very nice house there (beachfront maybe) and your pension and ahv wil be much more worth there I believe.

Or EFTs and/or property in

 

[redeemed76]

@maxamir Move to Argentina and enjoy rest of life.

 

[easterd2]

@redeemed76 Probably a quite short rest of life with that inflation rate.