Financing a multi-family property in Switzerland: costs and mortgages

1. How much does a multi-family property cost in Switzerland? 

The price of an apartment building depends mainly on where it is located and how big the property is. Other factors, such as the condition of the building and standard of construction and fittings, also play a role. You can get an idea of the properties available in your price segment by searching the Comparis online property marketplace.

2. How much would it cost to build a multi-family property?

The cost of building a multi-family home depends on many variables, such as the construction standard. For a new building with an average construction standard, you can expect to pay around 800 to 900 francs per cubic metre of building volume.

Building a multi-family home also requires a plot of land. The plot will also have to be connected to utility services. This is generally the responsibility of the local authority. 

As the property developer, however, you often have to cover the cost of any necessary improvements (e.g. connections to utility services and access routes) yourself, especially in the case of land that has recently been rezoned. Additional costs of up to 100 francs per square metre are not uncommon.

3. Can a multi-family property be financed without a down payment?

Banks usually finance a multi-family property for up to 75% of the market value. This means that you must contribute at least 25% of the purchase price yourself (down payment). Unlike buying a single-family home, you may not use any pension savings. 

In many cases, you will actually have to put up more than 25% of the equity as a down payment. This is because you must reduce your mortgage debt on a multi-family property to a maximum of two thirds of the collateral value within 10 years. As a result, the annual repayments are higher at the beginning than for a property that you live in yourself. 

Are you thinking about buying or building a multi-family property? If so, you should seek advice on financing from independent experts – for example, from HypoPlus, the Comparis mortgage partner.

4. Financing a multi-family property: requirements

Mortgage lenders look at mortgage applications very carefully. They want to be sure that you can meet the repayments over the long term. The following factors influence the financing of a multi-family property:

Valuation

The first step is to assess the value of your multi-family property. The capitalized income method is used to do this. The capitalized income value is based on the achievable annual rental income. In other words, it means the potential rental income after deducting ancillary costs such as heating, electricity and water.

Affordability

The mortgage lender also calculates the affordability of the property. To do this, it works out the ratio between the mortgage amount and the annual net rental income from the property, the repayments and the ancillary costs incurred. You can find more information about the affordability of an investment property in our article.

Gross yield

Another factor that is important for the mortgage application is the gross yield. This is the ratio between the net rental income and the purchase price. The minimum gross yield required by banks varies depending on the location and condition of the property.

5. What are the pros and cons of a multi-family property?

Buying a multi-family property offers a number of advantages, but also involves risks. 

Pros

• Solid capital investment: multi-family properties or apartment buildings are considered stable investment properties due to the regular rental income.

• Risk diversification: the division of the property into several apartments ensures that the default risk in the event of vacancy or the loss of rent of individual apartments is greatly reduced.

• Increase in value and protection from inflation: in attractive locations, property owners often benefit from increases in value over the long term.

Cons

• High capital investment: the capital requirements and the stricter repayment obligations make financing more difficult than for owner-occupied residential property.

• Administrative burden and risks: leasing, administration and maintenance involve ongoing work. Vacancies, rental losses or extensive renovations pose financial risks.

6. Conclusion: is it worth buying a multi-family property?

Buying or building a multi-family property is a major decision that requires careful planning. Before buying, pay attention to the location, condition and rentability of the property. 

Although multi-family properties offer long-term return opportunities, they require administrative work and a substantial amount of capital as a down payment. Independent advice from experts can help you realistically assess the risks and find the right financing.