What a building really earns
A yield advertised as “net” is not always net. Here, every cost is named: vacancy, management, maintenance, non-recoverable charges. Then the price is set against the income value, and the financing against the test the bank will run.
Tap a rate to rerun the whole calculation with that term. Cash flow uses the actual rate; the bank test stays at 5%, whatever today’s rate. The reference rate governs how indexed rents move.
From the rent roll to your pocket
Each line below follows the figures entered above. Change an amount or an assumption: the explanations, formulas and amounts recalculate here too. Nothing is hidden, nothing is rounded in your favour.
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01
The rent roll
The total, over one year, of the net rents set by the current leases: flats, parking spaces, storage, commercial premises. Without service-charge instalments: heating, hot water and caretaking recharged to tenants are not income; they merely pass through.
How to check it. A rent roll signed by the managing agent, the leases themselves, and the rents actually received over the last twelve months. A rent roll can be “theoretical”: it adds up rents that nobody is paying yet.
What moves it. Under Swiss law, a rent cannot be raised at will: only on recognised grounds (a rise in the reference rate, inflation, value-adding works, customary rents in the area). A rent well above the market can, for its part, be challenged. The upside is therefore real, but slow and regulated.
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02
Vacancy
The share of rent that does not come in: a flat empty between two tenants, a re-letting that drags on, arrears that end in litigation. It is counted as a percentage of the rent roll, averaged over several years.
The orders of magnitude. In the canton of Vaud, the vacancy rate remains low, around 1% or less depending on the region. An assumption of 2 to 3% covers turnover and arrears for a well-located residential building. For commercial premises or offices, allow considerably more: 5 to 10%.
The trap. A “full” rent roll on the day of sale says nothing about next year. Ask for the history of re-lettings and arrears.
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03
Management
What it costs to manage the building: collecting rents and chasing arrears, drafting leases, re-letting, preparing service-charge statements, dealing with tenants, ordering minor works. It is paid as a percentage of rents collected.
The orders of magnitude. In French-speaking Switzerland, generally between 4 and 6% of rents collected, depending on the size of the building and the scope of the mandate; VAT is often added.
Even if you manage it yourself. Count it all the same. Your time has a value, and both the bank and the next buyer will count it.
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04
Maintenance
Two realities in one line. Routine maintenance: repairs, repainting between tenants, appliances, boiler servicing. And the provision for major works: roof, façades, windows, risers, heating, which come round every twenty-five to forty years and cost hundreds of thousands of francs.
The orders of magnitude. Here it is expressed as a percentage of the price. Another useful reading: on an older building, maintenance commonly accounts for 10 to 20% of the rent roll. A renovated building costs less in the first years, but the provision is still due.
The trap. An attractive yield often hides deferred maintenance. The energy certificate (CECB) and the age of the installations tell you what is coming.
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05
Non-recoverable charges
What the owner pays and cannot recharge to tenants: building insurance with the ECA, compulsory in the canton of Vaud, building liability insurance, the municipal property tax (up to 1.5‰ of the tax valuation depending on the municipality), co-ownership costs if the building is held as condominium ownership (PPE), and any charge the leases do not allow to be passed on.
Not to be confused with recoverable charges (heating, hot water, caretaking, electricity for common areas), which tenants pay in instalments if their lease lists them. Those do not enter the calculation.
How to check it. The service-charge statements for the last two years and the insurance policies.
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06
Net income
What the building produces before any debt and any tax. This is the central figure: the one the bank, the valuer and the next buyer will look at. Everything else follows from it: the net yield, the income value, the bank test.
Why before debt. To compare buildings with one another, however each one is financed.
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07
Gross yield, net yield
The gross yield divides the rent roll by the price. It is the one in the listings: simple, flattering, and silent about costs. The net yield divides net income by the price. It is the only one that compares two buildings honestly.
Another way to read the price. Professionals also speak of a “multiple”: the price is worth so many times the rent roll. The higher the multiple, the more you pay for each franc of rent.
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What the building is worth, not what is asked for it
The income value is the method banks and valuers use for an investment property: net income divided by the capitalisation rate. That rate is the return an investor requires to carry that particular risk. It rises with risk (secondary location, poor condition, fragile tenants) and falls for a rare and secure property.
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| Capitalisation rate | Income value | Gap with the price |
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Why a quarter point matters
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Paying above value
It is sometimes justified: rents well below the market, building reserves, a location that cannot be found elsewhere. But it is a bet on the future, and the bank does not finance it: it lends on the lower of the two values.
The orders of magnitude
In French-speaking Switzerland, a well-located residential building often trades at a capitalisation rate of between 3 and 4.5%; more for commercial property or a building in need of renovation.
On top of the price, in your own funds
Paid by the buyer on the day of the deed, at the notary’s office. The table follows your calculation: –.
| Item | Rate | Amount |
|---|---|---|
| Cantonal property transfer taxThe State of Vaud’s tax on the transfer of ownership | 2.2% | – |
| Municipal property transfer taxThe municipality’s share: up to half the cantonal rate, depending on the municipality | 1.1% | – |
| Notary and land registerFees, charges, mortgage certificates; more if the mortgage is large | ~1% | – |
| Total | – | – |
Bank rules for an investment property
A building bought to let does not follow the same rules as a home you live in. Since 2020, Swiss banks have applied stricter requirements, set through their self-regulation.
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Equity
At least 25% of the price, and it must be “hard” equity: savings, securities, a gift. The second pillar (occupational pension) cannot be used to buy an investment property. Purchase costs come on top, also from your own funds.
Why. The bank wants the investor to carry a real share of the risk: if rents fall, it is the investor’s stake that absorbs the shock first.
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09
The mortgage and its two ranks
The mortgage finances the rest: the price and the costs, less your equity. Up to two thirds of the value, it is the 1st rank, well secured. Beyond that, up to 75%, it is the 2nd rank, riskier for the bank.
Amortisation. For an investment property, the debt must be brought down to two thirds of the value within ten years at most. As a precaution, this calculation applies at least 1% of the debt per year, even without a 2nd rank.
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10
The bank test
The bank does not look at the rate you will pay, but at an imputed rate of 5%: that of a lasting rise in rates. It adds amortisation, and checks that the building’s net income covers these imputed costs. For an investment property, it is the rents that must carry the debt, not your salary.
If coverage is insufficient, the bank lends less, and more equity or a lower price is needed.
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11
Actual cash flow
What remains each year once interest at today’s rate and amortisation have been paid. It is the money that reaches your account, before tax.
An essential nuance. Amortisation is not money lost: it is debt repaid, and therefore savings held in the building. Low cash flow with heavy amortisation is not a poor investment.
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12
Return on your equity and the leverage effect
What each franc you contributed earns. Debt acts as a lever: as long as the building yields more (net yield) than the debt costs (the rate), each franc borrowed improves the return on your stake. In the opposite case, leverage works against you.
Two readings. Cash flow alone, or cash flow plus amortisation, which remains part of your wealth.
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What the calculation leaves out
Tax. Rents are added to your taxable income; interest, maintenance and charges are deducted from it. The building becomes part of your taxable wealth. On resale, property gains tax applies. Your fiduciary will quantify these effects.
Energy works
Fossil-fuel heating, a poorly insulated envelope: cantonal requirements and the market will push for upgrades. A low CECB class signals investment ahead, and sometimes rent increases that become possible after the works.
Capital gains
This calculation bets on no rise in value. If one comes, all the better: it will not have been used to justify the price.
The building under stress
A sound investment holds when the assumptions deteriorate. Here is your building put through four shocks, one at a time, starting from your figures.
| Scenario | Net income | Cash flow / yr | Coverage |
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The reference rate
The Federal Housing Office’s reference mortgage rate stands at 1.25%. Each quarter-point rise in principle allows rents indexed to it to be increased by 3%; each fall gives tenants the right to an equivalent reduction.
Renewing the mortgage
A fixed rate protects you until it expires, not beyond. The “rate at 3.5%” scenario shows what your cash flow would become if you renewed in a more expensive market.
Reading the table
Coverage that stays above 100% in all four scenarios indicates a robust building. Below 100%, the bank could require faster amortisation or additional equity on renewal.
Three traps with an investment property
The “net” that is not
A seller may advertise a net yield without counting vacancy, management or maintenance. On your rent roll of –, these three items weigh – a year.
Price against value
The income value is net income divided by the capitalisation rate. If the asking price clearly exceeds it, the buyer is paying for a hoped-for rise in rents, or for a rare location.
The bank test
The bank checks that net income covers 5% interest plus amortisation on the debt. Below that threshold, it will require more equity, whatever the actual rate.
The documents to request from the seller
A building is judged on documents. Without them, no figure on this page can be confirmed, and no bank will commit.
Income
- Signed and dated rent roll
- Copies of all leases and amendments
- Rents received over the last twelve months
- History of re-lettings and arrears
- Pending disputes and challenges
Costs
- Service-charge statements for the last two years
- ECA and liability insurance policies
- Management and caretaking contracts
- Property tax and tax valuation
- Current maintenance contracts
The building
- Land register extract and easements
- Plans and floor areas per unit
- CECB energy certificate
- Works completed and planned
- Permits and any cantonal restrictions on rented housing
What we are asked most often
What is a good net yield for a building in Vaud?
There is no universal figure: it depends on the location, the condition and the quality of the tenants. For a well-located residential building, transactions often take place at a net yield of around 3 to 4%. A markedly higher yield almost always signals a risk: works, vacancy, location.
Can I use my second pillar?
No, not for an investment property. The second pillar only finances the home you live in. Equity must come from your savings, securities or a gift.
Why does the bank calculate at 5% when I pay less?
Because it lends for ten, twenty or thirty years. It checks that the building would hold if rates rose for good. The actual rate determines your cash flow; the imputed rate determines what the bank agrees to lend.
How reliable is the default capitalisation rate?
3.75% is a prudent starting point for a reasonably located residential building in French-speaking Switzerland. For a specific property, we set it from comparable transactions, the condition of the building and its rental potential.
The rents are low: can I raise them after the purchase?
Not freely. A change of owner does not in itself justify an increase. The admissible grounds are regulated: reference rate, inflation, value-adding works, customary rents in the area. The potential exists, but it is realised mainly on re-letting and after works.
Do I need a company to buy a building?
It is not compulsory. Holding in your own name or through a company changes the tax, the financing and the succession. The answer depends on your situation: your fiduciary and your notary provide it; we prepare the figures.
The analysis by email, and a look at the property
I will send you the details of this calculation. On request, I will go through the property with you:
- a reading of the rent roll and the leases;
- market rents in the area and scope for adjustment;
- works to plan for and their effect on value.
Alexandre · Affinités Immobilier, Pully