Buy a small place enough to live. If you take a mortgage pay it as soon as possible to be debt-free. Then invest in diverse things with best return while being tax smart. Perhaps barbell method.
My understanding is that's not a wise Swiss-property investment strategy (the subject of this article after all...). There, the combination of no capital gain taxes, a tax on wealth, very-low-and-stable interest rates means that one should take an interest-only-mortgage and invest what would have otherwise been your principal payments...
Switzerland makes home owners pay taxes as if they rented the house out for 12 months each year. This could add a nice chunk to your net cost of owning.
If they rent it they pay income tax anyway (or rather the company that owns the place does). The "virtual rent" added to income is for people who own the place where they live.
Switzerland is not very home ownership friendly, at least there are very little tax incentives for it (personally I'd rather have people invest their wealth into productive things rather than real estate, so I find it good).
In large cities most places are owned by banks/insurances/other real estate companies and rented out.
That's a distinction without a difference, they mean the same thing. Not friendly does not imply neutral, it implies not friendly. If I said don't walk through that neighborhood it's not friendly, you would not interpret that as saying it's neutral.
That's the reason why Switzerland has such a high per capita debt [1]. You can deduct your interest payments from the tax payments. So there is an interest to stay indebted for homeowners. My parents own a house that they inherited from my grandparents including a debt but both wouldn't pay off the mortgage because of tax reasons.
Houses are bad investments due to foreign millionaires inflating real-estate for the rest of us.
Is it really foreign millionaires or is it local billionaires - namely the banks throwing money with ridiculously low interest rates at everyone - who inflate the house prices?
I would suspect a few of these wealthy foreigners buying property are trying to make sure there wealth is tied up in something their home state cannot take away ownership of. If it depreciates a bit, it's probably fine. 97% of something is better than nothing. I also suspect they have nice stock portfolios already as well.
You wonder? It's easy to guess. They go up. A lot.
But you don't have to guess, just look at property values for anything at all nice in Vancouver. Practically the whole city could not afford to buy a house there on their current income.
Is it possible to create "real estate" which is basically geared towards this kind of thing?
Eg. a large vertical block of tiny, tiny rooms which are just good enough to be livable, but with extremely expensive components.. designed to be parked and traded and never lived in.
OP here: I heard from people working in hotels that some expensive ones loose millions each year but wealthy people from Arab countries who own them don't care.
Their assets in Switzerland would be priced in CHF. It could be a good diversification from USD-priced assets they have at home. There was a single-day 30% pop in CHF a few years back.
That generally also has an immediate negative effect on higher end property prices, though.
The recent decline of sterling is great for foreigners interesten in acquiring London property -- London will always be London, brexit or no brexit. But it just got a lot more interesting for foreigners with businesses (or investments) abroad to relocate there.
I'm not so sure that it's a safe bet to assume that stocks will keep going up by 10% per year every year in the future.
I think we've already reached a point where people are starting to complain about corporations getting too big and becoming too powerful.
What drove increases in the stock market in the past few decades has been the replacement of many small businesses by few large corporate entities.
Economies of scale have been a double-edged sword; while they have allowed consumers to purchase non-essential goods and services (such as electronic devices and appliances, holidays, clothing, entertainment...) for cheaper, they have also been responsible for driving up the prices of essentials likes housing, transport, electricity, medicine, education, etc (e.g. by shifting the workforce to big cities where corporate HQs are)...
I think we'll reach a point in the near future when city-dwellers will start running out of resources to support basic living essentials and this will force them out of cities - This will drive real estate prices down but it will also drive down stock prices which depend on that lifestyle.
I think the bubble that we're in now affects every person on the planet so if/when it bursts, the repercussions will be massive.
yeh a lot of investment pros are worried that the market is getting to high I am wondering if I ought to take some of my profits and buy gold etf's or just got cash and wait for the fall to buy back in
Professionals are often wrong, and timing the market is more difficult than it might seem - in no small part because many investors are unable to prevent emotions from affecting their trading decisions.
That said, it's entirely possible that the market is irrationally high; the question then becomes how long it can remain that way. There's a famous Keynes quote - “The market can stay irrational a lot longer than you can stay solvent.”
If you do think stocks are overpriced, it may be advisable to create a disciplined strategy for profit taking - selling a few percent of your net assets each time the market increases by, say, 10%.
I seriously wonder how index funds have affected the volatility of the stock market. The stock market has been growing independent of popular sentiment or trust in growth, which makes me wonder if the growth is driven by a massive number of people automating their investments through index funds and just forgetting about it.
Could you give an example of this happening within a country as a whole? People may abandon city X for city Y or move to suburbs, but what more usually happens in a depression is homelessness within the city or extreme densification (sharing rooms).
So what happens when if you move back to USA would you still get advantages of 0 percent capital gains? Or would you have to move everything to the USA ?
Good question. I think usually you are taxed where you live. Unless you are a US citizen, then you are taxed also by the US if you earn more than $100k.
(As an American, if you open a bank account in Switzerland you have to declare a special form, stating that you will correctly declare taxes to the US etc. I think you even have to fill this form if you hold a green-card or ever worked/paid taxes in your life in the US).
One of the very first things they ask you when you open a bank account in Switzerland is whether you are from the US. When I was asked this, and I asked them why this was important (I'm not from the US btw.), the person on the other side of the table told me that if I was, she'd have to get her manager.
Yeah, all that changed heavily since the bank-secrecy laws were removed in 2013. Some decades ago it was probably really like in Wolf of Wallstreet: https://www.youtube.com/watch?v=ndTbiDQjbiE
People coming here with suitcases full of money was one thing but a totally other level was that some Swiss bankers really flew over to the US with encrypted laptops "to get new customers".
For my follow Americans thinking about commenting on this, keep in mind that mortgages vary quite a lot from country to country.
The mortgage system we have in the United States--characterized by: domination by the government (in the form of GSEs), long (30 year) fixed rate mortgages with no prepayment penalties, high leverage ratios (up to 19:1 or higher), and low spreads--is not the system used elsewhere. Other countries also tax mortgages and homes differently, and may have far more widespread rent regulations in place.
Rules of thumb and folksy wisdom that was developed in the context of the US system probably won't translate well to a very different one.
For instance, Canada (which, despite its resource based economy, is generally seen as fairly similar to the US) has no mortgage interest deduction, doesn't permit mortgages for terms of longer than 5 years (amortization is generally for 25 years but you refinance as a matter of course at least every 5 years), and generally provinces are more tenant-friendly than the most tenant friendly US states (e.g. California) with things such as limiting rent increases based on government inflation figures. The tax rules around exempting capital gains from the sale of a primary residence are also different in Canada - more generous but also with more stringent requirements.
Mortgages in Switzerland can still take on the literal meaning of the word(s), running for 50 or even 100 years with the debtor's pension fund placed as security.
FWIW the OP's cost of living figures in the video included in the linked article seem a little low or are assuming best case. Sure you can get health insurance cover at 250.- CHF a month but that will be at the highest franchise (i forget the English word) so if you do get sick it's going to cost you 2,500 CHF before the insurance kicks in.
1,200.- CHF a month seems low for Zürich, but also high for a single room with no kitchen. I'm paying a little more than that for 3.5 rooms with a kitchen, garage, cave, etc. No, I'm not in Zürich or Genève.
400.- CHF a month on food seems about right if you never eat out at all ever. And sure you can spend as little as 100.- CHF a month on travel, but you're in Switzerland - get out and see a bit of it, go snowboarding/skiing in the winter season.
For anyone reading this in the US: don't take this at face value.
This (my opinion) is coming from someone who's indifferent between renting vs. owning, so is trying to make the decision purely on financial factors.
Reasons why this article does't apply in the US:
(1) The "eigenmietwert" the author writes about is known as an "imputed income tax". The idea is, most assets generate income: bonds pay interest, stocks pay dividends, etc. A house, which is an asset, always generates economic benefit, it's just a question of the owner (who lives in it), or to a renter (who pays rent). When you think about it, it's kind of absurd that in the US, an owner pays income tax if they rent their house to someone else, but not to themself. Taxes like this are an attempt to level the playing field.
(2) The US allows homeowners to deduct mortgage interest (up to a point) from taxable income. Why you can't deduct interest on credit cards or auto loans, but you can on mortgage interest, beats the hell out of me?
(3) The US taxes capital gains. California, where I live, has a state-level _surtax_ on capital gains. I'm not sure whether the author is correct about Swiss tax treatment of capital gains, but have no reason to think he's wrong.
(4) Interest rates are artificially cheap in the US, as some others have pointed out, due to GSE interference in the mortgage market. There's absolutely no reason Fannie/Freddie should encourage people to buy houses. I also think it's ridiculous that the FHA uses taxpayer funds to let low-income borrowers get cheap loans. Let them rent. Renting isn't some kind of hardship, in many ways, it's better than owning, you have less downside risk and it's easier to relocate for a job.
(5) In places like California, where we have Prop 13, property taxes don't reassess -- ever. So, barring a sale, someone who bought a house 30 years ago pays essentially what they paid in property tax then, now. This encourages exactly what you'd think, people move less and try to stay in their homes as long as possible, even performing absurd tax gymnastics like "one-wall remodels" to avoid having their tear-down "remodels" reassessed.
(6) "1031 exchanges" and other gimmicks let property owners sell their properties--AT A GAIN--and trade up to a larger place, without ever paying tax. How crazy is this!?
(7) In most jurisdictions, property taxes are federally deductible; I get no such deduction as a renter, though it could be argued that my rent is lower as a result (due to the owner's tax writeoff).
At bottom, this stems from a cultural attitude we have in the US (really the entire Anglosphere) that homeownership is some sort of God-given right/natural thing to aspire to. I wish this attitude would change. I wouldn't mind renting but it's hard to justify given how tilted US law is toward homeownership.
Which other "Anglosphere" countries promote home ownership the same way that the US does with e.g. mortgage interest deductions? There are many pairs of otherwise culturally similar countries with differing policies on this (e.g. US & Canada, Belgium & the Netherlands).
Could you explain what you mean by mortgage interest deductions? Does it mean that mortgage interest can be deducted from taxable income? Even if that income is unrelated to the property?
In the UK landlords are allowed to deduct mortgage interest from taxable rental income, but this is currently being phased out. (A good thing in my opinion)
Right, in the US, you can deduct mortgage interest and property taxes to lower your taxable income.
There is a mortgage cap of around a million dollars where the deduction ends, which is only relevant in a small number of real estate markets like California, Seattle, New York, and so on.
Australia, and in a big way. The local lunacy is "negative gearing": if you invest so badly that your rental income doesn't even cover your mortgage, you get to deduct the difference from your taxes!
For Prop 13, the assessed value will go up at the inflation rate, capped at 2% a year, from the purchase price. So after thirty years your assessed value be about 1.8 times the purchased price. New taxes can also be added either as a percent of assessed value or a flat per parcel tax. This still produces what you described in (5) but not quite as extreme. Although you did not mention the kicker that Prop 13 allows the low assessed value to be transferred to descendants for a, "let's build a landed aristocracy like old timey Europe" vibe.
Here is a photo of one of these tear-down remodels in La Jolla near the beach[1].
(1) Personal Property Taxes also do this. Does you state not have these? (Jealous). Just saw more of your post, wasn't aware of lack of reassessment. Not sure that's the case for me.
(2) I'm sure deductible mortgage interest is a thing because the government has determined it's better to own a home (to them) than to rent it. Much better than "owning" credit cards and getting a break on those once a year. Plus you've got phase-outs when doing taxes, etc. Of my student loans, only a small fraction of them get a deduction on interest, regardless of how many other ones I have.
> A financially rational person would consider buying a house if the P/R ratio is 15 or lower.
How does one go about calculating that? Or reading someone else's calculations? For real estate prices I can check out the Case-Shiller, for P/R I got nothing.
Ah, I figured that underline was for emphasis. Sadly your source doesn't cite its own sources.
It's pretty rare to see a home both for sale and for rent, so you'd likely be comparing oranges for sale with apples for rent. A lot of the magic of Case-Shiller is in finding valid comparables over time, so I'm hoping someone has put together a similar time regional series for rents themselves. Maybe not -- it's not like there's a huge market for derivatives on rental properties.
Yeah Switzerland is great as long as you don't have children. Once you get a child, well, you're out of luck. Childcare in Switzerland is the craziest expense I've seen in my life, where having your kid looked after for 5 days a week will cost you 2-2,5k CHF / USD per month! And if you have a second child, they might give you 10% discount. So around 4,5k USD per month for 2 kids. It's madness!
Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.
So while I agree that Switzerland is a nice place to be while 20-30, after that age it hugely depends on your situation. Got 2 kids and know some German? You might actually be better off in Germany.
> having your kid looked after for 5 days2-2,5k CHF / USD per month!
Yes but only when your kid is 2-3 years old. After that kindergarten is free. Superb elementary school, high-school is free; and on top Uni-Zurich and ETH, the MIT of Europe, is also almost free (costs like 500$ a semester).
> Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.
Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
> and on top Uni-Zurich and ETH, the MIT of Europe
Universities are way more on a level field in Europe than in the US. “Elite” universities will just be marginally better than good universities that come in the dozens and you probably haven’t heard of.
Though it is true that Universities are on a level field in Europe, I feel that ETH Zurich is a bit of an exception to this rule, it really is talked about in a different way than other universities in Europe.
Of course you disagree. You literally make money off people who want to buy into the "Swiss dream". While certainly it is a great country to live in, it has its shortcomings. What I'm pointing out might not be a big deal for many people who are not planning to have children. But for others it sure might be a deal breaker.
> Yes but only when your kid is 2-3 years old. After that kindergarten is free.
Yeah, you just forgot to mention that kindergarten starts at the age of 4, and is not 5 days a week, the whole day. It's 4 days a week, 3,5 hours a day. The rest still needs to be paid at the same rate I mentioned before. So you are talking here without really knowing your facts.
> Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
So you are basically saying that someone who earns a shit-ton of money should live in a 1 bedroom apartment with their partner and child? I just can't answer to that...
>So you are basically saying that someone who earns a shit-ton of money should live in a 1 bedroom apartment
No, I am not telling anybody to do anything. I am pointing to the existing legal possibilities because Zurich's landlords are arrogant and sometimes write clauses in their rent-contracts that "break" Swiss law ("only 1 person can live here"). I am trying to highlight that Zurich's jurisdiction is renter-friendly and laws are applied rigorously.
You can calmly rent-sign a contract with weird clauses, because they are invalid, so you can break them and the landlord can't kick you out for it. Worst case is you get infront of the "Schlichtungsbehörde" which is a pre-step before the court, where a volunteer-landlord, volunteer-renter-representative and a neutral party will decide over a dispute quickly (and cheaply). So please make sure you are member of mieterverband.ch, if you live in Zurich.
Though IT support would count, I was thinking more along the lines of supporting traders, such as quants and the people that specialise in their toolkits that support them.
Salaries for software engineers engineers in Zurich are 90k CHF - 120k CHF. That is 6500 CHF - 8500 CHF after taxes per month.
For more information, shoot me an e-mail. You find my contact details in my HN profile. (Disclaimer: I am a former programm and I recruit software engineers into Zurich, New York and Munich for a living now.)
This is the biggest negative of switzerland. It's like a 'tax' for living in an amazing, amazing place. I am very happy for my 2 kids to grow up here though and that cost is relative to me. Relative in that it is 'just' acceptable. Taken me a while to say that though.....
It is cheap in Germany. Until this year it's been less than 300€ / month. Starting in 2018, in Berlin, daycare is going to cost you a whopping 0€! So it is possible, if the country and the people really want it.
A couple flaws in the article. If you don't buy a house but buy stocks, you will pay rent. According to the numbers in the article, this nearly cuts the stock return in half. Also, the article states you will lose money on the depreciation of the building, but does not take into account the appreciation of the land. The land appreciation is highly leveraged, as well, since most people typically place only 20% down on the property, but you gain the appreciation on the gross price of the estate.
But I would say that, here is Seattle, and probably all along the West coast, you do have foreign investment, mainly from China, driving up the cost of real estate.
> "the land doubled in value and is worth 200k CHF"
Even if you add up not having to pay rent and possible sale of the house (on which y) you would still end up much better with stocks:
House: You buy the house, after 30 years let's say the value stays the same:
You own 500.000 CHF worth of house. (Assuming you had no repairs and the value stayed the same, which is VERY optimistic). You sell the house. you pay a whopping tax on that.
Stocks: You paid rent of 1600 CHF (numbers I used in the article). Within 30 years, you burn ~500.000 CHF on rent but you make 4-8 million CHF with conservative stocks assuming a 7-10% compound interest rate. In Switzerland, you sell this stock tax-free.
I don't own property in Switzerland, but you write as if property transactions are in cash up-front. Instead, you put some money down (why the GP mentioned leverage), and the amount you don't make back by investing in stocks is this opportunity cost. The amount saved in rent is also subject to compound interest; unless you are worried that this person is a serial home purchaser those savings will be invested in the market.
I'm sure you can come up with more details and that the market probably wins, but you asked what you were missing.
I didn't get into tax treatment because I don't know Swiss tax rules. In the U.S., you pay the same capital gains on both a stock sale and house sale (and a personal residence sale may have the tax waived). You also get favorable tax treatment on a home, for instance, the mortgage interest tax deduction.
If you buy a rental house, that is a tax deduction bonanza! Nearly everything is deductible. It's true the house depreciates. For a rental house, this depreciation is tax deductible. However, no real write-offs for a stock sale.
In the U.S., there will be gains on real estate since the average real property appreciation rate is 5-10%, about the same for stocks. But, you must look at cash on cash. I buy a $500k house for $100k cash. You must calculate the stock return on the $100k. However, you calculate appreciation for real estate on the total value of the land and house.
tldr: 5x appreciation on house vs. stock, with tax write-offs and no rent.
Well, if I have to buy a property in Switzerland, it wouldn't be to make living for ma retirement, but more for not to pay a crazy rent. A property which you rent for 2.2k is easily 1.2k in mortgage, which means if you are a owner, you're making 1k per month and in the top of it, if you play it well, you could lower much more your taxes.
At the end, I pay fewer taxes (I'm not expecting ever to finish paying my property in Switzerland), I pay less rent and I invest more in stocks.
In switzerand, you buy a house to live on, not to profit on. First 5 years you are heavily taxed if you sell.
When I got my mortgage they capped morgages as they knew there was a bubble starting.
As a single, somewhat lonesome country the objective function is to manage stability. (Not that I know anything about economics)
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86 comments
[ 4.7 ms ] story [ 147 ms ] threadThe interest rate on mortages is always higher compared to the interest rate on leverage for stock (by using the stock itself as collateral).
You can get close to the yield on swiss confederation bonds if you buy well priced, leveraged ETFs.
Obviously that interest rate is as stable if not more stable than the interest rates on mortages.
Please DO NOT buy stocks with money from a mortage. you're just giving up at least 1% yield.
Please note that with leverage (stocks or real estate) is is possible to lose more money than you invest.
https://www.quora.com/How-does-a-land-value-tax-not-create-d...
Switzerland is not very home ownership friendly, at least there are very little tax incentives for it (personally I'd rather have people invest their wealth into productive things rather than real estate, so I find it good). In large cities most places are owned by banks/insurances/other real estate companies and rented out.
[1] https://www.swissinfo.ch/eng/wealth-ranking_swiss-are-world-...
Is it really foreign millionaires or is it local billionaires - namely the banks throwing money with ridiculously low interest rates at everyone - who inflate the house prices?
A lot of Chinese nationals are buying property in the states and Canada in order to accomplish the same thing
I wonder how this kind of cash parking affects property values?
But you don't have to guess, just look at property values for anything at all nice in Vancouver. Practically the whole city could not afford to buy a house there on their current income.
Go look at housing prices in every city on the west coast.
Eg. a large vertical block of tiny, tiny rooms which are just good enough to be livable, but with extremely expensive components.. designed to be parked and traded and never lived in.
The recent decline of sterling is great for foreigners interesten in acquiring London property -- London will always be London, brexit or no brexit. But it just got a lot more interesting for foreigners with businesses (or investments) abroad to relocate there.
I think we've already reached a point where people are starting to complain about corporations getting too big and becoming too powerful.
What drove increases in the stock market in the past few decades has been the replacement of many small businesses by few large corporate entities.
Economies of scale have been a double-edged sword; while they have allowed consumers to purchase non-essential goods and services (such as electronic devices and appliances, holidays, clothing, entertainment...) for cheaper, they have also been responsible for driving up the prices of essentials likes housing, transport, electricity, medicine, education, etc (e.g. by shifting the workforce to big cities where corporate HQs are)...
I think we'll reach a point in the near future when city-dwellers will start running out of resources to support basic living essentials and this will force them out of cities - This will drive real estate prices down but it will also drive down stock prices which depend on that lifestyle.
I think the bubble that we're in now affects every person on the planet so if/when it bursts, the repercussions will be massive.
http://www.nytimes.com/interactive/2011/01/02/business/20110...
That said, it's entirely possible that the market is irrationally high; the question then becomes how long it can remain that way. There's a famous Keynes quote - “The market can stay irrational a lot longer than you can stay solvent.”
If you do think stocks are overpriced, it may be advisable to create a disciplined strategy for profit taking - selling a few percent of your net assets each time the market increases by, say, 10%.
Could you give an example of this happening within a country as a whole? People may abandon city X for city Y or move to suburbs, but what more usually happens in a depression is homelessness within the city or extreme densification (sharing rooms).
(As an American, if you open a bank account in Switzerland you have to declare a special form, stating that you will correctly declare taxes to the US etc. I think you even have to fill this form if you hold a green-card or ever worked/paid taxes in your life in the US).
People coming here with suitcases full of money was one thing but a totally other level was that some Swiss bankers really flew over to the US with encrypted laptops "to get new customers".
The mortgage system we have in the United States--characterized by: domination by the government (in the form of GSEs), long (30 year) fixed rate mortgages with no prepayment penalties, high leverage ratios (up to 19:1 or higher), and low spreads--is not the system used elsewhere. Other countries also tax mortgages and homes differently, and may have far more widespread rent regulations in place.
Rules of thumb and folksy wisdom that was developed in the context of the US system probably won't translate well to a very different one.
FWIW the OP's cost of living figures in the video included in the linked article seem a little low or are assuming best case. Sure you can get health insurance cover at 250.- CHF a month but that will be at the highest franchise (i forget the English word) so if you do get sick it's going to cost you 2,500 CHF before the insurance kicks in.
1,200.- CHF a month seems low for Zürich, but also high for a single room with no kitchen. I'm paying a little more than that for 3.5 rooms with a kitchen, garage, cave, etc. No, I'm not in Zürich or Genève.
400.- CHF a month on food seems about right if you never eat out at all ever. And sure you can spend as little as 100.- CHF a month on travel, but you're in Switzerland - get out and see a bit of it, go snowboarding/skiing in the winter season.
I think the word you're looking for is deductible
This (my opinion) is coming from someone who's indifferent between renting vs. owning, so is trying to make the decision purely on financial factors.
Reasons why this article does't apply in the US:
(1) The "eigenmietwert" the author writes about is known as an "imputed income tax". The idea is, most assets generate income: bonds pay interest, stocks pay dividends, etc. A house, which is an asset, always generates economic benefit, it's just a question of the owner (who lives in it), or to a renter (who pays rent). When you think about it, it's kind of absurd that in the US, an owner pays income tax if they rent their house to someone else, but not to themself. Taxes like this are an attempt to level the playing field.
(2) The US allows homeowners to deduct mortgage interest (up to a point) from taxable income. Why you can't deduct interest on credit cards or auto loans, but you can on mortgage interest, beats the hell out of me?
(3) The US taxes capital gains. California, where I live, has a state-level _surtax_ on capital gains. I'm not sure whether the author is correct about Swiss tax treatment of capital gains, but have no reason to think he's wrong.
(4) Interest rates are artificially cheap in the US, as some others have pointed out, due to GSE interference in the mortgage market. There's absolutely no reason Fannie/Freddie should encourage people to buy houses. I also think it's ridiculous that the FHA uses taxpayer funds to let low-income borrowers get cheap loans. Let them rent. Renting isn't some kind of hardship, in many ways, it's better than owning, you have less downside risk and it's easier to relocate for a job.
(5) In places like California, where we have Prop 13, property taxes don't reassess -- ever. So, barring a sale, someone who bought a house 30 years ago pays essentially what they paid in property tax then, now. This encourages exactly what you'd think, people move less and try to stay in their homes as long as possible, even performing absurd tax gymnastics like "one-wall remodels" to avoid having their tear-down "remodels" reassessed.
(6) "1031 exchanges" and other gimmicks let property owners sell their properties--AT A GAIN--and trade up to a larger place, without ever paying tax. How crazy is this!?
(7) In most jurisdictions, property taxes are federally deductible; I get no such deduction as a renter, though it could be argued that my rent is lower as a result (due to the owner's tax writeoff).
At bottom, this stems from a cultural attitude we have in the US (really the entire Anglosphere) that homeownership is some sort of God-given right/natural thing to aspire to. I wish this attitude would change. I wouldn't mind renting but it's hard to justify given how tilted US law is toward homeownership.
In the UK landlords are allowed to deduct mortgage interest from taxable rental income, but this is currently being phased out. (A good thing in my opinion)
There is a mortgage cap of around a million dollars where the deduction ends, which is only relevant in a small number of real estate markets like California, Seattle, New York, and so on.
> Why you can't deduct interest on credit cards or auto loans, but you can on mortgage interest, beats the hell out of me?
That sounds logical to me as well. In a way, a house is just a huge "consumer credit".
Here is a photo of one of these tear-down remodels in La Jolla near the beach[1].
[1]https://njarboe.com/images/LaJollaTeardownSmall.jpg
(2) I'm sure deductible mortgage interest is a thing because the government has determined it's better to own a home (to them) than to rent it. Much better than "owning" credit cards and getting a break on those once a year. Plus you've got phase-outs when doing taxes, etc. Of my student loans, only a small fraction of them get a deduction on interest, regardless of how many other ones I have.
How does one go about calculating that? Or reading someone else's calculations? For real estate prices I can check out the Case-Shiller, for P/R I got nothing.
It's pretty rare to see a home both for sale and for rent, so you'd likely be comparing oranges for sale with apples for rent. A lot of the magic of Case-Shiller is in finding valid comparables over time, so I'm hoping someone has put together a similar time regional series for rents themselves. Maybe not -- it's not like there's a huge market for derivatives on rental properties.
LOL, not on the coastal states.
If it's the west coast, people earn 50k while starting house prices are 500k+
As far as Houston goes, look for yourself:
https://www.zillow.com/houston-tx/houses/
A dilapidated tear down in an undesirable area is about what you'll get for under $100k in Houston
https://www.zillow.com/homedetails/6858-Evans-St-Houston-TX-...
Anyway, on the west coast of the USA housing is extraordinarily expensive and many multiples of median income.
Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.
So while I agree that Switzerland is a nice place to be while 20-30, after that age it hugely depends on your situation. Got 2 kids and know some German? You might actually be better off in Germany.
> having your kid looked after for 5 days2-2,5k CHF / USD per month!
Yes but only when your kid is 2-3 years old. After that kindergarten is free. Superb elementary school, high-school is free; and on top Uni-Zurich and ETH, the MIT of Europe, is also almost free (costs like 500$ a semester).
> Besides that, you will need to leave your shared apartment and go looking for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.
Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
Universities are way more on a level field in Europe than in the US. “Elite” universities will just be marginally better than good universities that come in the dozens and you probably haven’t heard of.
> Yes but only when your kid is 2-3 years old. After that kindergarten is free.
Yeah, you just forgot to mention that kindergarten starts at the age of 4, and is not 5 days a week, the whole day. It's 4 days a week, 3,5 hours a day. The rest still needs to be paid at the same rate I mentioned before. So you are talking here without really knowing your facts.
> Why? You're probably referring to some regulations. Well, if you have a wife and one kid, you can legally even live in a 1-bedroom apartment (formula for legal limit of grown-up people per apartment is "# of people = # of rooms + 1" - source p. 29: https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...)
So you are basically saying that someone who earns a shit-ton of money should live in a 1 bedroom apartment with their partner and child? I just can't answer to that...
No, I am not telling anybody to do anything. I am pointing to the existing legal possibilities because Zurich's landlords are arrogant and sometimes write clauses in their rent-contracts that "break" Swiss law ("only 1 person can live here"). I am trying to highlight that Zurich's jurisdiction is renter-friendly and laws are applied rigorously.
You can calmly rent-sign a contract with weird clauses, because they are invalid, so you can break them and the landlord can't kick you out for it. Worst case is you get infront of the "Schlichtungsbehörde" which is a pre-step before the court, where a volunteer-landlord, volunteer-renter-representative and a neutral party will decide over a dispute quickly (and cheaply). So please make sure you are member of mieterverband.ch, if you live in Zurich.
If someone it taking home ~300K CHF / year in some sort of support role in a bank in Zurich the above overheads don't seem to be such a deal breaker.
For more information, shoot me an e-mail. You find my contact details in my HN profile. (Disclaimer: I am a former programm and I recruit software engineers into Zurich, New York and Munich for a living now.)
3 kids, US Midwest, 36k/yr for daycare.
I'm honestly looking at it as a huge bonus (paid to myself) after 4-5 years. It keeps me from crying.
But I would say that, here is Seattle, and probably all along the West coast, you do have foreign investment, mainly from China, driving up the cost of real estate.
I think I wrote:
> "the land doubled in value and is worth 200k CHF"
Even if you add up not having to pay rent and possible sale of the house (on which y) you would still end up much better with stocks:
House: You buy the house, after 30 years let's say the value stays the same: You own 500.000 CHF worth of house. (Assuming you had no repairs and the value stayed the same, which is VERY optimistic). You sell the house. you pay a whopping tax on that.
Stocks: You paid rent of 1600 CHF (numbers I used in the article). Within 30 years, you burn ~500.000 CHF on rent but you make 4-8 million CHF with conservative stocks assuming a 7-10% compound interest rate. In Switzerland, you sell this stock tax-free.
Is there anything I am missing?
Like, lots, I think.
I don't own property in Switzerland, but you write as if property transactions are in cash up-front. Instead, you put some money down (why the GP mentioned leverage), and the amount you don't make back by investing in stocks is this opportunity cost. The amount saved in rent is also subject to compound interest; unless you are worried that this person is a serial home purchaser those savings will be invested in the market.
I'm sure you can come up with more details and that the market probably wins, but you asked what you were missing.
In the U.S., there will be gains on real estate since the average real property appreciation rate is 5-10%, about the same for stocks. But, you must look at cash on cash. I buy a $500k house for $100k cash. You must calculate the stock return on the $100k. However, you calculate appreciation for real estate on the total value of the land and house.
tldr: 5x appreciation on house vs. stock, with tax write-offs and no rent.
At the end, I pay fewer taxes (I'm not expecting ever to finish paying my property in Switzerland), I pay less rent and I invest more in stocks.