We have in the article "
This is what a house/apartment really costs The "Real Estate" study has shown that the actual costs of buying a property can be significantly higher than if only the purchase price is taken into account. In this article, we show how you can estimate the running costs per month for your own home, so that you have a complete picture of what your own four walls cost.
"I pay only 500 francs for the mortgage per month"
Surely you have heard this saying in your circle of acquaintances as well. It suggests that it is much cheaper to own your own home than to be a tenant. However, this statement is missing significant cost blocks, which we list below. We make the following assumptions, which we also used for the example in the previous article:
The cost items that you must pay attention to are
– Mortgage interest
– Opportunity cost of equity
– Maintenance and repairs
– Service charges
– Own rental value
and the tax implications of each item.
Mortgage interest: do not forget the effect on taxes
You can deduct debt interest from your taxable income. In our case the mortgage of 600'000 francs costs at 2.5% interest annually 15'000 francs. Because this interest on borrowed capital is not tax deductible, the effective costs at a marginal tax rate of 33.3% only 10'000 francs. Owning a home becomes even more favorable in this first consideration.
Opportunity costs absolutely consider
Unfortunately, hardly any homeowner takes into account the opportunity costs of equity capital. This means that equity invested in a house no longer yields interest. Of course, interest rates are low, but even the 100,000 francs drawn from the pension fund in the example would yield a tax-free return of 1,500 annually. The portfolio of sold shares would also increase in value on a long-term average. And also money from the savings account, which is now in the property, no longer yields interest. This is the smallest item of opportunity cost in the example because the interest on the account is low the interest income also has to be taxed. In total, these opportunity costs amount to 4,460 francs per year.
Maintenance and repairs, insurance premiums
If you are no longer a tenant, you have to bear the costs of maintenance and repairs yourself. So-called maintenance and repair costs are considered value-preserving investments and can be deducted from taxable income. Buyers of houses often underestimate which costs they will have to pay here. Examples of such expenses include:
– Repainting the facade
– Replacement of windows
– Replacement of sun blinds
– Equivalent replacement of kitchen and bathroom
– Repair or replacement of washing machine or heating system
– Maintenance of heating and fireplace
– Maintenance and care of the garden
Likewise, in addition to the homeowner's insurance, additional insurance premiums are incurred, which tenants do not have to bear. These are also tax deductible.
In our example we have estimated the sum of these expenses at 6,000 francs. Net after taxes, the estimated costs are 4,000 francs.
Furthermore, there are additional costs which are not tax deductible. These include consumption costs (incl. Basic fee) for electricity, gas/heating oil, sweepings, water and waste water. We have set these at 3,000 francs.
Owner-occupied rental value
The imputed rental value is an assumption about the annual value that a property provides to its owner. This has a tax consequence because it increases the taxable income. Assuming an imputed rental value of 18,000 francs, this results in our example in an increase of the tax burden by 6,000 francs per year.
Summary running costs for house or apartment
So in our example, the total after-tax cost is 27,460 francs for a house/apartment, or 2,288 francs per month:
We have shown you that the real expenses of owning a home are much higher than the interest on the mortgage. In addition, we have made you aware that you should also consider the fiscal effects. In our example, the annual costs of 27,460 are significantly more than the mortgage interest costs. The fiscal effects from deductions. Own rental value roughly balance each other out in the example. If the mortgage amount or interest rate were lower, the tax effect would be negative for the homeowner. In a year with high expenses for value-preserving investments, it would be positive for the owner of the home.
We have not considered two things in the example. First, the possible increase in value of the apartment or house. This can have a significant impact on the overall bill. And secondly, the expenses for amortization. You have to take this into account in your personal liquidity planning. In accounting terms, however, amortization is merely a redistribution of one's own assets: Instead of a lot of money in the account, which is matched by a large debt, amortization causes a reduction in one's own assets, but also a reduction in one's own debts.
We recommend that before you buy a home, you think about the actual costs of buying it, the ongoing costs, and what they mean for financing the property. As additional support after reading these two articles, you can download for free the Excel file we used to create these posts here. You only have to adjust red numbers, the blue ones are calculated automatically.
Free download: Download
here the Excel file used for this article for free!
Tip: The biggest cost for many is the mortgage interest rate. Get free advice here, how you can reduce your interest costs!