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| Sample investment |
| Cash Investment |
SFR 1,000,000 |
| + Mortgage |
SFR 1,000,000 |
| = Building price |
SFR 2,000,000 |
Mean interest rate paid on the
mortgage = 4.5%
Amortization of SFR 10,000 a year on the mortgage |
|
|
In this example, a foreigner buys a
building for SFR 2,000,000, financed with SFR1,000,000 in cash and a SFR1,000,000
mortgage with a mean annual interest rate of 4.5%, plus 1% amortization (SFR10,000 a
year). The building is kept for 20 years and then resold at a profit. We see that every year the building's rents cover all expenses, i.e.
fees, interest, amortization, and taxes, leaving a profit on the cash investment of at
least 5% after tax.
Exact cash flows will vary from one building to another; this
table serves as an example only. Numbers in parenthesis are negatives. |
Cash flow projection over total investment life |
Year |
Rents |
+ |
Subsidy |
= |
Total
Rental Income |
- |
(Charges) |
- |
(Interests) |
- |
(Amortization) |
- |
(Taxes) |
+ |
Investment |
= |
Net
Cash Flow |
Net
Cash Yield |
1 |
81,000 |
+ |
54,000 |
= |
135,000 |
- |
(27,000) |
- |
(45,000) |
- |
(10,000) |
- |
0 |
+ |
(1,000,000) |
= |
(947,000) |
NA |
2 |
81,000 |
+ |
54,000 |
= |
135,000 |
- |
(27,000) |
- |
(44,450) |
- |
(10,000) |
- |
0 |
+ |
0 |
= |
53,450 |
5.3% |
3 |
81,000 |
+ |
54,000 |
= |
135,000 |
- |
(27,000) |
- |
(44,100) |
- |
(10,000) |
- |
0 |
+ |
0 |
= |
53,900 |
5.4% |
4 |
81,000 |
+ |
54,000 |
= |
135,000 |
- |
(27,000) |
- |
(43,650) |
- |
(10,000) |
- |
0 |
+ |
0 |
= |
54,350 |
5.4% |
5 |
87,000 |
+ |
48,000 |
= |
135,000 |
- |
(27,000) |
- |
(43,200) |
- |
(10,000) |
- |
0 |
+ |
0 |
= |
54,800 |
5.5% |
6 |
87,000 |
+ |
48,000 |
= |
135,000 |
- |
(27,000) |
- |
(42,750) |
- |
(10,000) |
- |
(2,000) |
+ |
0 |
= |
53,200 |
5.3% |
7 |
93,000 |
+ |
42,000 |
= |
135,000 |
- |
(27,000) |
- |
(42,300) |
- |
(10,000) |
- |
(2,000) |
+ |
0 |
= |
53,600 |
5.4% |
8 |
93,000 |
+ |
42,000 |
= |
135,000 |
- |
(27,000) |
- |
(41,850) |
- |
(10,000) |
- |
(2,000) |
+ |
0 |
= |
54,000 |
5.4% |
9 |
99,000 |
+ |
36,000 |
= |
135,000 |
- |
(27,000) |
- |
(41,400) |
- |
(10,000) |
- |
(2,000) |
+ |
0 |
= |
54,500 |
5.4% |
10 |
99,000 |
+ |
36,000 |
= |
135,000 |
- |
(27,000) |
- |
(40,950) |
- |
(10,000) |
- |
(2,000) |
+ |
0 |
= |
55,000 |
5.5% |
11 |
105,000 |
+ |
30,000 |
= |
135,000 |
- |
(27,000) |
- |
(40,500) |
- |
(10,000) |
- |
(4,000) |
+ |
0 |
= |
53,200 |
5.3% |
12 |
105,000 |
+ |
30,000 |
= |
135,000 |
- |
(27,000) |
- |
(40,050) |
- |
(10,000) |
- |
(4,000) |
+ |
0 |
= |
53,600 |
5.4% |
13 |
111,000 |
+ |
24,000 |
= |
135,000 |
- |
(27,000) |
- |
(39,600) |
- |
(10,000) |
- |
(4,000) |
+ |
0 |
= |
54,000 |
5.4% |
14 |
111,000 |
+ |
24,000 |
= |
135,000 |
- |
(27,000) |
- |
(39,150) |
- |
(10,000) |
- |
(4,000) |
+ |
0 |
= |
54,400 |
5.4% |
15 |
117,000 |
+ |
18,000 |
= |
135,000 |
- |
(27,000) |
- |
(38,700) |
- |
(10,000) |
- |
(4,000) |
+ |
0 |
= |
54,800 |
5.5% |
16 |
117,000 |
+ |
18,000 |
= |
135,000 |
- |
(27,000) |
- |
(38,250) |
- |
(10,000) |
- |
(6,000) |
+ |
0 |
= |
53,000 |
5.3% |
17 |
123,000 |
+ |
12,000 |
= |
135,000 |
- |
(27,000) |
- |
(37,800) |
- |
(10,000) |
- |
(6,000) |
+ |
0 |
= |
53,500 |
5.3% |
18 |
123,000 |
+ |
12,000 |
= |
135,000 |
- |
(27,000) |
- |
(37,350) |
- |
(10,000) |
- |
(6,000) |
+ |
0 |
= |
54,000 |
5.4% |
19 |
129,000 |
+ |
6,000 |
= |
135,000 |
- |
(27,000) |
- |
(36,900) |
- |
(10,000) |
- |
(6,000) |
+ |
0 |
= |
54,000 |
5.4% |
20 |
135,000 |
+ |
0 |
= |
135,000 |
- |
(27,000) |
- |
(36,450) |
- |
(10,000) |
- |
(6,000) |
+ |
0 |
= |
54,500 |
5.5% |
21 |
170,000 |
+ |
0 |
= |
170,000 |
- |
(34,000) |
- |
(36,000) |
- |
(10,000) |
- |
(239,000) |
+ |
2,040,000 |
= |
1,893,000 |
NA |
Rents paid by
the tenants (column 2) are raised every two years, but the Subsidy you
receive from the Government decreases by the same amount, so that Rental Income
stays the same. At the end of the 20-year period (or sometimes, after only 10 years ), you
can raise the rents up to the market level, which usually represents an increase of
30-40%. Thus annual rents jump from SFR135,000 to SFR170,000 during in the 21st year.
The Government will grant you a significant tax
break for the 20-year period, but this will decrease by 25% every five years. So
beginning Year 5, you will pay 25% of normal taxes, then 50%, 75%, etc.
At the end of the 20-year period, you can resell
the building for about SFR2,833,000. With this, you pay off the remaining mortgage of
SFR790,000, giving you SFR2,043,000 profit on which you will pay a small amount of capital
gains tax. This will leave you with about SFR1,893,000 in cash, for an initial investment
of SFR1,000,000. And don't forget the annual cash yield of about 5% that you will have
enjoyed during that 20-year period!
|
© Micheloud
& Cie
1999 |
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Switzerland
is yours | Investing in Swiss
property | Contact |
