Vacation apartment

Jürg Zulliger

Hardly any other country has such a wide selection of vacation homes and vacation apartments as Switzerland. Housing selection ranges from rustico in Ticino to a pretty chalet in the mountains to a five-star apartment with service. Most of the properties are located in the cantons of Grisons, Ticino, Valais and the Bernese Oberland. Vacation properties are popular for a variety of reasons. Whether you just want to get away from the hustle and bustle of the city for a weekend or you just want to relax- having your own vacation apartment to get away to an attractive natural or mountain landscape offers many advantages. And if you are the owner, you will enjoy your vacation to the utmost. But there is another aspect that is increasingly thrusting its way to the fore: Many people are now viewing vacation rentals as a long-term, profitable investment.

Stable prices

Framework conditions have changed dramatically since the  Second Home Initiative was adopted in 2012. The corresponding contingents of 20 percent vacation real estate have long been exhausted in most regions of Switzerland. In some popular tourist destinations, new construction has practically come to a standstill. Although: In the longer term, these restrictions will probably contribute to a certain scarcity, which in turn will create stable vacation home prices. Furthermore, this kind of market will offer attractive mortgage terms. As a rule, financing via a Swiss bank or another financing partner is a viable option.

You need to know the following when financing your vacation getaway: Vacation-home credit guidelines are stricter than those for a person’s primary residence. Most banks grant loans for holiday properties at around 60-80 percent; generally, you will only get a first mortgage (up to 65 percent of the property purchase price). Important to know: Purchasing pension fund credit as a type of financial aid is not possible for vacation apartments. You have to pay for half or up to 65 percent of the value within a certain period of time. The amortization period is 15 years (or until retirement at the latest). Recommendation: Due to these more restrictive regulations, whenever possible, you should consider increasing an existing mortgage (e.g., the one on your primary residence).

Tips for safeguarding your budget

The following factors must be considered in order to correctly assess the profitability of owning a vacation home or apartment this and what the ongoing fixed costs might involve:

Mortgage rates: Although interest rates are currently very attractive, interest payments are a longer-term cost factor. Of course, the usual amortization should also be part of your business plan.

Acquisition and additional costs: Acquisition usually incurs a few one-off expenses, such as property transfer fees, notary and land register fees. Furthermore, a vacation home/apartment must be insured against fire, the elements or water damage (compulsory building insurance).

Taxes: Owning a vacation home or a second home always has tax consequences. For the time you live there, you have to pay tax on the imputed rental value. You have to list the rental income for the remaining weeks or months as income on your tax returns.

Management: You have to pay your share of community costs if you own a condo in a building consisting of condominiums. Community costs normally include utilities, energy (heating, electricity), a management fee and, if necessary, additional deposits in the renewal fund. Not to mention of course any repairs to your own unit--one day you may want to renovate your kitchen or install new flooring or wall coverings.

Guest services: Maybe you will not be able to be there for every third-party rental, key collection or cleaning. All cleaning services, apartment transfers or other services will have to be accounted for in your budget in one form or another. A certain amount of your budget also needs to be earmarked for marketing and inquiries.

Depreciation: Every real estate professional knows that properties start showing signs of wear over the years. If you often have guests to stay or if you rent your property out, you will soon discover these signs of wear. - You have to post all of this as a cost and also set funds aside for later renovations and maintenance.

Is renting worth it?

In most resort/vacation regions, it is quite possible to rent an apartment throughout the year, thereby making up at least part of the cost of ownership. But is it a worthwhile business? New digital marketing channels and the Internet are making a major contribution to simplifying the search for prospective tenants. Nevertheless, beware of setting your expectations too high. The more money you want to rent your vacation rental for, the more demanding your prospective renters will likely be. As a result, demand is really brisk for only a few weeks a year. Which is usually Christmas and New Year’s or the time during the sports holidays.

You may be able to charge a little extra for in-demand properties that can be rented for several weeks a year. This depends, however, on the location and how well it is marketed. Renting vacation homes/apartments, however, are not considered big business yielding huge profits. Because certain risks, age depreciation and costs must be considered in your bookkeeping. Conversely, however, the following also applies: You will save a few thousand francs every year, because you will not incur any hotel costs or other expenses for renting accommodations at your chosen vacation location.

Vacation apartment checklist

Location: Whether your “dream property” represents a solid investment primarily depends on your situation. For instance, how good is highway and other transportation access, how close are you to the mountain station; how good is the infrastructure in the village? Are the leisure, sports and gastronomy venues attractive and up to date? Trends in tourism are changing fast! What about the views, the peace and quiet and opportunities for tanning? Before you buy, check the accessibility from the lowlands and, for example, proximity to the nearest ski lift or to tourist attractions. One big advantage is if you are already familiar with the area itself and have visited it regularly in the past.

Rental potential: You should first check whether the apartment is possibly integrated into a management concept or not. Special restrictions do not usually apply to existing, older apartments. But official documents such as the land register entry, etc. are always needed.

Get advice: Before you buy, you have to spend enough time considering all aspects. It pays to get the opinion of a specialist or an architect. You should thoroughly read all the essential documents such as the land register extract, the rules governing condominium ownership, the purchase agreement, etc.

Managing third-party rental: Do you live in the lowlands? You should consider what it takes you in terms of travel time and the amount of effort needed to get to your destination. You can't always count on there being a nice neighbor who will pitch hit for you when you can’t be there (let alone do it for free). Consider in advance how you can organize apartment transfers, cleanings or who you can call to get necessary repairs done on short notice.

The condition of the apartment: The structural condition and impeccable interior are worth at least as much as a primary residence when it comes to second homes and vacation apartments. Keep in mind that at some point, you might  want or need to resell the property. The rules of the game are simple: Properties that offer quality in terms of location will quickly attract renters or buyers. Your apartment should be well maintained and in perfect condition. Prospective buyers for vacation properties do not want to have to first do any renovation work or make repairs, but rather want to simply enjoy their vacation hassle-free!