5 Ways to Invest in Real Estate in Switzerland

A new term has arisen over the last few years, describing a distinct segment of the population between the upper and middle classes. The “mass affluent”, by the numbers, describes hard-working people earning over CHF 75'000 and holding between CHF 100'000 and CHF 1 million in investable assets. Other characteristics of the mass affluent are, generally speaking, that they are financially savvy and already accustomed to diversifying. From a financial standpoint, 70% of the mass affluent actively invest. But currently, only 5% of their investable assets are in real estate, compared to 11% of high-net-worth individuals’ allocations in the same asset class.

Comparison of the portfolio allocation of mass affluent and high-net-worth individuals

If you fall into the section of the population known as the mass affluent, you may have the means to invest in real estate but not a clear understanding of how or where to do that. You can further diversify your portfolio, build wealth, and expand into real estate through these different ways. Let’s dive into five real estate investment options you may not have considered.

1. Short-Term Rentals

“Short-term rental” has become a buzzword over the last decade and describes furnished properties rented out for temporary stays. Airbnb and Vrbo are largely responsible for the meteoric rise in short-term rentals, although the concept has been around for a while.

The advantages include a relatively low barrier to entry and the potential to make higher returns than a long-term rental option, which is another investment option we will evaluate. The disadvantages are that local governments or organizations, even at a granular level, like your local homeowner's association (HOA), may have laws or restrictions on short-term rental properties, since people are regularly coming and going from them.

2. Long-Term Rentals

We mentioned long-term rentals, an excellent option for investors who prefer a less volatile method for renting a property out. Finding a long-term tenant is beneficial for the stability it offers. The revenue generated per month is fixed, of course, but it is a set amount you can depend on. You can also vet tenants instead of opening your property to whoever books for that night.

There is a reason operating a long-term rental is the most popular and ubiquitous method of renting. The U.S. Bureau of Labor Statistics released data from a 2022 survey showing that 59.6% of leases were for 12 months, 31.8% of leases were month-to-month, and 8.6% were some other length. In Switzerland, it is estimated that, as of 2022, 60% of housing is rented. It is a popular investment option for a reason.

The good goes with the bad, though, especially for long-term rentals. Many of the advantages can also be disadvantages. For instance, a fixed-income investment might also be a drawback because it is susceptible to changes in inflation. In general, long-term rentals have less flexibility in price rises.

Finding the right tenants is crucial; vet them carefully. They can impact your day-to-day life, but their treatment of the property may also impact you when they move out. Usually, long-term rentals have higher turnover costs because, unless the tenant takes good care, the property can be neglected. And it could be a long period before you, the owner, can step in and assess the damage. With a short-term rental, a maintenance crew usually cleans the property every few days.

3. Property Flipping

Most people have probably seen TV shows turning ramshackle units into glamorous homes. While these shows try to incorporate drama for viewership, the reality is that a massive amount of time, money, planning, logistics, and supplies have already gone into preparing the home. The producers are not risking it all.

As a real estate investor, you must weigh the risks of property flipping. It is a viable option for the mass affluent because it takes more of an up-front investment than a turnkey home. The labor and supplies necessary for flipping a property require substantial capital. You are not just buying a property; you are renovating it. A good rule of thumb for real estate investors is to pay no more than 70% of a property’s after-repair value (ARV), minus the cost of the renovation. This is known as the 70% rule.

There is significant risk involved, like if you underestimate the cost of the project or if there is a market downturn. Of course, you want to buy low and sell high. In some cases, you can turn the unit into a rental property as a backup plan, but if you have already invested a considerable amount into improving its condition, it will take a lot longer to recoup your investment.

As you can see, property flipping is not as dazzling as some TV shows make it out to be. Always have a plan and calculate costs beforehand so that you are well-informed when making decisions.

4. Real Estate Investment Trusts (REITs)

REITs have been around since the 1960s, and the core concept is that investors pool their capital to generate steady income from owning and, in most cases, also operating income-producing real estate properties. These securities trade like stocks on major exchanges. Most REITs have a high return potential, dispersing at least 90% of taxable income to shareholders – that is, if they want to qualify as securities. The catch is that REITs must continue the 90% payout regardless of changes in the share price.

Because of these payouts and their qualifications as securities, REITs receive special tax considerations. While REITs are structured as corporations, they are not taxed at the entity level, meaning investors avoid double taxation on dividends. The average dividend yields twice that of common stocks and is paid at their highest marginal tax rate by the individual.

There are other drawbacks, like how REITs are subject to fluctuating fees and market volatility; investors cannot use amortization and depreciation to offset taxes; and most REITs are not diversified, but instead focus on specific property types.

One more drawback is that REITs do not exist per se in the Swiss market. Instead, there are many funds (mostly mutual funds and ETFs) that mimic the effect of REITs and are publicly traded on SIX.

5. Alternative Real Estate Investments, Like Le Bijou

The mass affluent also have alternative real estate investment options, such as Le Bijou, which capitalizes on the inefficiencies in the hotel industry and creates lucrative pathways for real estate investors. The operational umbrella encompasses three primary arms of business: an alternative to hotels, high-margin residential rentals, and event venues.

Some advantages include no rental caps (a stark difference from traditional rentals, which are subject to tenancy law) and no unpaid rent, as Le Bijou can adjust to new trends: namely, high-net-worth individuals looking for short-term stays.

In line with its quick adaptation, Le Bijou leverages technology to make daily market adjustments. Its diversified income streams, premium locations, and automation continue to elevate its performance. As stated previously, there is a risk with any investment, so it is important to practice due diligence before investing. But the fact is, some incredible alternatives to mainstream real estate investing are certainly worth considering when deciding where and how to invest in real estate.

In conclusion, you do not need exorbitant amounts of capital to invest in real estate. You can peruse the options available now and look into lesser-known options, like Le Bijou. If you fall into the category of the mass affluent investor, think through your objectives: to create passive income streams or diversify your portfolio? Or maybe you just have a general goal of building your wealth? Whatever your individual goals are, weigh the advantages and disadvantages of each investment option, then make a decision based on your situation.