Financing a multi-family property: costs and mortgages

1. How much would it cost to buy a multi-family property?

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

In addition to the price of the building itself, there are ancillary purchase costs you will need to pay on top. They can amount to as much as 5% of the purchase price. You will have to pay these ancillary costs yourself. You cannot use your mortgage to finance them.

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

First of all, you'll need a plot of land, which must be accessible and serviced before building can start. This is generally the responsibility of the local authority.

As the building owner, however, you often have to cover the cost of any necessary improvements (e.g. connections to utility services, access routes) yourself, especially in the case of land that has recently been rezoned. Additional costs of up to 100 francs/m2 are not uncommon.

The cost of the build itself 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 francs per cubic metre of building volume.

3. What do I need to know about financing?

Regarding the deposit, you should note that since 1 January 2020, banks require a loan-to-value ratio of no more than 75%, and you must put down at least 25% of the purchase price yourself. Unlike buying a single-family home you may not use any pension savings .

It is important to find a good financing deal that you know you can afford in the long term. Also bear in mind that the annual repayments are higher at the beginning than for a property that you live in yourself. With a multi-family property, you must reduce your mortgage debt to a maximum of two thirds of its loan value within 10 years.

4. How do I choose the best mortgage for my multi-family property?

Mortgage lenders look at mortgage applications very carefully. In particular, they will want to know your credit rating, to be sure that you can meet the repayments in the long term.

Valuation

The first step is to assess the value of your multi-family property. The capitalized income method is used for this.

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.

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.

The Comparis mortgage rate comparison can help you identify the best mortgage deals.

5. When is it worth buying a multi-family property?

A multi-family property can serve different purposes. You can use it yourself as a multi-generational home. It can provide you with a pension income or just be a worthwhile investment in itself. Depending on its purpose, factors such as the geographical location, standard and layout will be more or less important.

If you are letting it out, the net return is crucial. This is determined by comparing the net rental income minus operating costs, insurance, reserves and rent losses to the purchase price. It is also worth considering the return on equity when calculating how much you need to borrow. This is calculated using the net rental income minus operating costs, insurance, reserves and rent losses. This figure is divided by the deposit you have put down.

Renting out a property provides a secure source of income

Multi-family properties have become an attractive investment, especially since the financial crisis of 2008. The resulting rental income is a secure source of income in the current market situation. In addition, the capital tied up in a property is considered to be largely inflation-proof.

This is especially true if you have a mortgage: the higher the rate of inflation, the more the real value of your mortgage amount declines.

Regular administrative and maintenance costs

On the other hand, the capital investment required for a multi-family property is relatively high. There are also ongoing administrative and maintenance costs to consider. You should therefore be clear in advance about what your aims are and make sure your financial planning is sound.