Financing an investment property: key info in brief

Buying an investment property: all you need to know about equity, affordability and mortgages

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17.05.2023 | 5 minutes

If you want to invest in real estate, more precisely in investment properties, you should first explore how you will finance your investment. Equity, amortization, affordability and mortgages – there is plenty to consider when buying a property.

The first step is usually deciding what type of investment property you want to buy. Popular investment properties include apartment buildings, offices and commercial buildings. No matter which option you choose, you must carefully weigh up the opportunities and risks.
One important criterion is the valuation of the real estate. Investment properties are generally valued using the capitalized income method, which looks at various factors such as location, public transport connections and the economic environment. With the capitalized income method, the value of the property is based on the rental income. Specifically, the question is how much rental income a buyer can obtain from the property. Learn more about this topic in our article on returns from investment properties.

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Equity: how much of your own capital will you need?

In Switzerland, a maximum of 75 percent of an investment property can be financed with borrowed capital. At least 25 percent of the purchase price must be equity. In the case of investment properties, you can only make limited use of funds from pillar 2 and 3. This means you cannot generally use capital from private and occupational pension funds as equity. Capital in pillar 2 and 3 can only be used if the owner actually lives in the apartment.

Amortization: the following deadline applies for reducing the mortgage debt

Stricter deadlines apply to reducing the debt for an investment property compared with mortgage debt for a home. The property must be amortized down to two thirds of the transaction value of the property within 10 years – instead of 15 years as with an owner-occupied home. Annual amortization for residential property is one percent of the mortgage amount.

Calculating affordability

The affordability calculation for investment properties also differs from the calculation for owner-occupied homes. Mortgage affordability is calculated based on the rental income, not the borrower’s income.
In addition to the net rental income, mortgage interest rates as well as amortization and ancillary costs are also relevant for the affordability calculation. These costs are deducted from the annual net rental income, and they must not be higher than the income. The aim is to achieve the highest possible surplus.

Affordability calculation: an example

Interested in buying an apartment building and want to calculate the affordability? You’ll need to consider the following costs:

Financial aspects

Costs in CHF

Purchase price


Mortgage (70%)


Equity (30%)


Annual net rental income


Mortgage interest costs at an imputed interest rate of 5% on CHF 2,100,000


Amortization: 1% of CHF 2,100,000


Ancillary costs: 15% of net rental income


Affordability is calculated as follows:

CHF 200,000 (net rental income)

-CHF 105,000 (interest costs)

-CHF 21,000 (amortization)

-CHF 30,000 (ancillary costs)

= CHF 44,000

The annual surplus is CHF 44,000.

Finding the right mortgage

As explained above, there is a lot to consider when financing an investment property. Ultimately however, the deciding factor is the right financing. We can help you arrange it.

Questions about how to finance an investment property?

Our advisory team will be happy to help you.

This income is taxable

When considering financing, you also need to consider the question of taxation. This is because rental income generated from an investment property must be taxed as income. However, some or all of the mortgage interest and maintenance costs, such as renovation expenses, can be deducted.
If the property is owned by a legal entity, tax on profit is payable and the cost of depreciation can also be accounted for.

Conclusion: a careful review is worthwhile

You now know the most important points to consider when financing investment properties. However, before you calculate the required equity, amortization and affordability and start looking for a suitable mortgage, we recommend that you carefully examine the property and its value before you put down your money. Other financial aspects, such as upcoming renovations, also have a decisive impact on future returns. Have the property you want to invest in professionally appraised and weigh up whether an investment property is worthwhile, taking into account your overall financial situation. This is the only way to ensure you can achieve optimum returns in the long run.

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