Cost Reduction: Housing

A roof over your head is one of the most expensive thing you will pay for in your life.

So its definitely worth optimising from the following angles:

  1. Location
    • Go as close as possible to your workplace / the place you spend your leisure time
      • This will save you costs and time for commuting
      • 10min more or less commuting distance equals 8.3 workingdays = 1.66 week of holidays per year!
  2. Space
    • Only take as much space as you need. Housing costs correlate to the square meters you are renting / buying.
    • Don’t be afraid of older buildings, you will not notice it after a few weeks (I personally live in a ugly building which is over 60 years old and I feel the same as I did before where the building was brand new).
  3. Taxes
    • Checkout the tax-levels of the areas around the location you would like to be and pick the one with the lowest taxes
    • In Switzerland you are taxed on the federal, cantonal and communal level, so every postal code has likely difference in tax costs. You can check them out using easy tax calculators like this one: ZKB Steuerrechner
  4. Renting vs. Buying
    • Get rid of the dream to own a house and pick the cheapest option – yes buying can be cheaper, but it depends on the place. SRF did a great article on that topic.
    • Its a bit more complicated but you can calculate it with these steps.
    • Lets assume you have 2 options, one flat to rent and one to buy (not the same)
    • Important: replace the numbers / percentages with the ones of your options / beliefs:
      • Renting costs for option 1:
        • Rent: 2’200
        • Utilities: 300
        • Opportunity Cost: 4% of 6’600 deposit = 264
        • Total = 30’264 per year.
      • Buying costs for option 2:
        • Mortgage loan interest: 2% of 900’000 = 18’000
        • Opportunity Cost: 4% of 300’000 downpayment = 12’000
        • Maintenance and Utilities: 0.5% of 1’200’000 = 6’000
        • Taxes (Eigenmietwert): 0.5% of 1’200’000 = 6’000
        • Insurance: est. 1000 per year = 1’000
        • Purchase costs (notary, etc.) divided through estimated owning period = 0.5% of 1’200’000 = 60’000 / 15 years = 4’000
        • Total = 47’000 per year.
        • The only thing which can reduce the buying costs are appreciations of the property which unfortunately are not guaranteed and pure speculation. If you estimate that at 1% per year you can count that in too = -12’000 per year for the buying option.
    • Don’t fool yourself into the I buy to not pay rent myth. Based on the listed costs you see that renting and buying do have a lot of non recoverable costs linked to it.
    • Every time I did run these numbers for real options, renting was by far the best option. Furthermore you should as well consider other up- und downsides of these options. Depending where you are living, owning might bring more security to you than renting or renting might bring you a lot of flexibility etc.
    • The last in my opinion very underrated element of buying a home on mortgage is that you are using a leveraged finance product (you bring 20% and the bank 80% = a leverage of 1 to 5). As long as the prices are stable or go up, everything is fine but if the price drops over the safety margin of the bank, you will have to either sell or bring more money to the bank as a collateral. That means in theory you can lose up to 5 times what you brought into.
    • If you want more details, Ben Felix did a great video on that topic.

I highly recommend to optimize your housing situation in exact that order to get the most out of it.

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