Renovate, replace or sell investment property |

Renovate, replace or sell – what are your options for investment property?

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26.01.2022 | 6 minutes

According to the Swiss Federal Statistical Office, just under 52 percent of the approximately 481,000 multi-family units in Switzerland were built between 1946 and 2000, which means they will be between 22 and 76 years old in 2022. This is significant in that the first repairs to multi-family units are usually necessary after 20 years – and comprehensive renovation work is generally required after 50 to 70 years in order to preserve the building fabric.

Similarly, just over half of these multi-family units are privately owned and held as investment properties. Private individuals are usually unable to finance comprehensive renovation work from their own funds; it takes years or even decades for the investment to be amortized. How much does a viable renovation project cost and is it financially worthwhile? What factors does this depend on? What are your options, and are there any better alternatives? We explain the basics so that you can make an informed decision.

Let’s start with your options

1. Continue

You carry on renting without carrying out any renovation work, be it partial or total, and keep the building in a habitable condition with as little effort as possible. Any action you take is limited to touching up the paintwork or similar maintenance work (see also “Refurbish, renovate, modernize … what’s the difference?”)

  • With this option, the focus is clearly on optimizing returns rather than on preserving value.
  • You are aware that by foregoing value-preserving investments, it’s not only the living comfort that will suffer, but also the building fabric. The building will age faster and will need to be fully renovated or even demolished sooner.
  • By adjusting your rent to take into account the lower level of comfort, your risk of vacancies will remain low: you will always find tenants who prefer to live as cheaply as possible rather than as comfortably as possible.
  • There is a fine line between low investment in maintenance and scruffy or even dilapidated. The former is to be aimed for, the latter to be avoided at all costs.
  • If you know you will be demolishing the building in the foreseeable future or selling it as a condemned property, you can change your strategy from continuation to demolition management. You can optimize your returns even more by no longer maintaining the building, but simply carrying out urgent repairs as cost effectively as possible. For instance you can replace defective equipment not with new, but with used devices, and repair defective cables surface-mounted rather than flush-mounted.

2. Partial or total renovation

This option includes the maintenance and repair of the building or individual components of it by means of partial or total renovation work.

Maintenance preserves the target condition, i.e. the functional capacity of the building or its individual components by means of simple, regular measures. This is different from repair, which restores usability by mending or replacing defective components. This also helps to maintain the value of the property.

The purpose of renovation is to restore all or part of your property to like-new condition. As part of a renovation project, modernization work can also be undertaken to sustainably improve the utility value of your property. This also includes energy-efficient renovation work.

Partial renovation is usually carried out while the building is occupied. Depending on the extent of your renovation plans, it may be more interesting to complete the work in multiple stages over a period of several years. Due to tax progression, it is financially more attractive to deduct the construction costs spread over several years rather than all at once.

  • If you opt for partial renovation, you will still receive (reduced) rental income during the construction work. Depending on the degree of interference of the work, your tenants may be entitled to a reduction in rent – so it’s in your best interest to get the work done as quickly as possible, yet thoroughly.
  • When a construction project is divided into stages, it is advisable to work out a renovation plan with a construction specialist. The first stage usually involves renovating the building shell (facade, windows, roof), then you move on to the interior and heating system during the second stage. The tenants will be able to use their apartments without restriction while the exterior renovation work is being carried out; the reduction in rent – if any – will therefore remain low.
  • When renovating a building in stages, certain basic costs are incurred twice – such as fees, preparatory work, scaffolding and construction cranes. Although these costs end up being higher, on the other hand you will save taxes and can adjust the rent in two stages as the property value increases.
  • The partial renovation of an occupied property will cost you less than the total renovation of a vacant property. However, you will also have less scope to adjust the current leases: replacing existing components – for example a kitchen – with new ones helps to maintain value and not to increase it; it is therefore not possible, or only partially possible, to reflect the costs in the rent you charge.
  • Modifications to the building fabric, such as adding floors or changing the floor plan, are very costly in an occupied property. Total renovation therefore usually requires a vacancy notice.
  • The costs of total renovation work are considered as added value and can be financed to a large extent through rent. However, you should keep in mind that after total renovation, your property may seem as good as new, but will nonetheless be 50 years old. To recoup your costs, you will need to raise the rent to a level where you will be competing not with other 50-year-old buildings, as previously, but with first-time rentals or very new multi-family units with more modern floor plans, more attractive kitchens and bathrooms, more flexible spaces, and so on.
  • The rulings of arbitration boards for rental disputes indicate a conflict of interest between tenants and landlords, especially in the case of energy-efficient renovation work. As a landlord, you want to prepare your property for the next 30 years and, if possible, benefit from Minergie funding and subsidies. The Swiss Homeowner Association (HEV) is convinced that tenants are not prepared to dig deeper into their pockets for energy-efficient renovation work. According to the HEV, tenants are willing to pay significantly higher rent for a more modern kitchen or a larger balcony after renovation work – but not for measures related to energy efficiency.
  • Total renovation down to the shell is only possible if the building is unoccupied – which usually requires a vacancy notice. Consult a construction law specialist for advice on what deadlines and formal requirements you must observe.
  • A vacancy notice creates a litigation risk: A single tenant can delay the construction project by up to four years by requesting an extension. In order to conserve some rental income during this period of uncertainty, you will need to sublet your property – risking further delays. You will need to submit a new planning application and recalculate the renovation costs – without knowing whether further objections could delay the project even more.

Refurbish, renovate, modernize … what’s the difference?

The terms associated with building renovations proliferate wildly and are not self-explanatory. Here is an overview to make things a bit clearer:

  • The main distinction is between preservation and replacement measures.
  • Maintenance refers to anything that preserves (i.e. does not restore) the usability of the property by simple means – for example, repainting an apartment.
  • Replacement is defined as any renovation work that repairs the entire building (total renovation) or individual components of it (partial renovation), i.e. restores it/them to a condition comparable to that of the original new building.
  • The purpose of repair work is to maintain value and restore usability by mending or replacing defective components. Improvements over the original condition do not count as renovation.
  • A sustained improvement in relation to the original condition is regarded as modernization, not renovation. Curiously, this also includes measures to save heating energy or water – in other words, precisely what is commonly referred to as “energy-efficient renovation”.
A man is painting a wall
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3. Sell

You can’t or don’t want to finance total renovation work or a replacement new building? You can’t see how you can recoup the cost of renovation and still get a return on your investment? You’re afraid that rising interest rates will lead to sharp value corrections and that your equity will not be sufficient? Then you should consider selling your property.

  • You will always find a buyer – at least according to the Best Owner principle developed by Andreas Loepfe, long-time head of CUREM, Center for Urban Real Estate Management at the University of Zurich. It states that the value added to a property is greatest when the owner matches the specific qualities of that property. So, sooner or later, your multi-family unit will find exactly the buyer who is looking for exactly what you no longer want. At the end of the day, the condition of the building is therefore irrelevant.
  • This leaves all options open to you until the sale: you’re just as likely to find a buyer for a 10-year-old multi-family unit as you are for one that is truly ready for demolition after 10 years of demolition management. (Even a dilapidated property can be of interest to a local construction company, as it can calculate total renovation or new construction at cost.)
  • Depending on the condition and location, it is not the property that attracts a buyer, but the potential of the land.
  • And this Best Owner will also be the highest bidder, because for them, the property has a higher value than for anyone else. You just need a little patience until your multi-family unit finds its ideal owner.
  • The crucial factor – as with all real estate – is the location. In peripheral regions with high vacancy rates, the Best Owner will wait longer and sometimes even a very long time.
  • The effective value of your property depends solely on how much someone is willing to pay for it.

4. Demolish and rebuild

You demolish your multi-family unit and replace it with a new building. This gives you maximum design freedom and allows you to plan the property to meet future needs. You do not have to take the structural or physical properties of existing elements into account. However, you should check carefully in advance whether the building regulations and utilization figures for your property are still the same. Under certain circumstances, they may have changed to your disadvantage, and the new building may no longer be as attractive to build (in terms of living area, floor height, etc.) as the current one. In this case, total renovation may be more profitable, even in the longer term.

Other important points:

  • Don’t underestimate the risks of a vacancy notice – as with total renovation, there is a risk of litigation. Tenants have a right to request extensions which may result in building delays. Important: during the year before the work starts, enter into only short-term leases and put a clause in the lease defining that the property is awaiting demolition, confirming that the tenants accept that no extensions to the term are permitted.

Are you planning energy-efficient renovation work?

We reward sustainable investment properties with financial benefits.

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When is which option preferable?

Investments always and exclusively relate to the future. So whether or not investing in your investment property is worthwhile depends on potentials and perspectives. The Swiss Homeowner Association (HEV) has developed a simple, pragmatic rule of thumb to help you to determine the right strategy for your property. To find it, two factors are relevant: firstly, the current condition of your multi-family unit and secondly, your assessment of the future development of the site.

  • Building fabric: How good is the building fabric? What condition is it in? How old is the building and to what extent is renovation work needed? Can the floor plan and room layout be adapted to current needs? Does the utilization meet today’s regulations, exceed them, or is there still potential?
  • Market potential: Where is the multi-family unit located (city, agglomeration, village, economically underdeveloped peripheral region), and what do you think of the prospects of the location? Do you expect population growth, stagnation or migration? Is the location well connected to the transport network? Is the location attractive for employers (infrastructure, land prices, taxes, business development, etc.); will it remain or become so? Are new jobs being created or are employers leaving? How will the immediate environment develop; will residential buildings be built, redeveloped or just used; are there vacancies or is demand higher than the housing supply? Are rents and land prices rising or stagnating?

Consider as many aspects as possible and answer good/bad without nuances. Seek professional advice if you are unable to properly judge the condition of the building fabric. Information for a sound assessment of potential can be found online and obtained from associations, authorities and specialized companies.

Building fabric

Market potential





Increase value. Good building fabric and prospects justify investment.

Total renovation



Maintain or slightly increase value. Good building fabric allows moderate investment.

Partial renovation



Exploit potential. Good long-term market potential legitimizes investment in new construction. If utilization not as high as for old building: sale as an exit strategy.

Demolition and replacement new building
or sale



Optimize returns. Invest only in maintaining the building’s functions.

Continue (renting without renovation)

Three questions for the expert – Dr. Matthias Holzhey

Private owners of investment properties invest their own money, while pension funds invest that of their beneficiaries. Do you see a difference between private and institutional multi-family unit owners in terms of their attitude toward renovation, repair and refurbishment work?
Matthias Holzhey: Private multi-family unit owners tend to be rather hesitant when it comes to making decisions about renovation work. On the one hand, renovation projects mobilize a lot of capital and can lead to prolonged loss of rent; on the other hand, the whole process requires a great deal of know-how and trust in the construction partners. For institutional companies, renovation is part of their daily business. Liquidity considerations are secondary; what counts are potential appreciation gains and higher long-term rental income.

Is there an ideal time for total renovation or demolition/new construction?
The cost-benefit calculation depends to a great extent on the building fabric, the existing floor plans and possible changes in the utilization of the land. In addition, the achievable rent level after renovation plays a decisive role. Renovation work therefore pays off much more in cities than in peripheral areas.

Whenever a multi-family unit is up for sale somewhere, pension funds bid against private investors – and usually have greater leverage. Is this also related to the low interest rate environment? Will demand for real estate plummet and lead to a decline in value when 10-year Confederates again generate better yields than investment property?
Pension funds are facing an investment emergency due to the zero interest rate on bonds, so they are investing a relatively large amount of money in real estate. Institutional investors are very willing to pay for real estate, particularly in prime locations. In the meantime, the prices of multi-family units have also adapted to the low interest rate level. If interest rates were to rise, write-downs of 20 percent and more could soon be expected. In practice, however, much depends of course on the speed of an interest rate rise and rent changes in this type of scenario.

Dr. Matthias Holzhey is responsible for research on the Swiss real estate market at the UBS Chief Investment Office. He issues publications such as the quarterly UBS Swiss Real Estate Bubble Index and forecasts on mortgage interest rate trends. Another focus of his work is giving investment recommendations to clients for Swiss real estate funds. He holds a PhD in economics from the University of Zurich with a specialization in empirical macro and regional economics.

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