real estate crowdfunding switzerland
Investing & Retirement

Real Estate Crowdfunding in Switzerland

February 7, 2022 - Daniel Dreier

What is real estate crowdfunding and does it make sense for Swiss investors? Get a clear overview in this comprehensive guide.

Real estate crowdfunding is a vehicle which lets you invest in properties and earn money from rental income. Here, moneyland.ch explains the advantages and risks of real estate crowdfunding in Switzerland using the standard co-ownership model.

How does standard real estate crowdfunding work?

In Switzerland, real estate can be divided into co-ownership shares, enabling one property to have multiple co-owners. These co-owned properties can be rented out, and rental income can be distributed among co-owners as per their shares and agreements.

In recent years, a number of specialized service providers have appeared which facilitate the process of buying shares of properties to earn rental income.

Which services do real estate crowdfunding platforms provide?

Real estate crowdfunding platforms combine services normally offered by real estate agencies, property managers, and asset managers.

The exact services offered vary between real estate crowdfunding service providers, but may include:

  • Market research into regional real estate markets and occupancy rates.

  • Locating suitable investment properties.

  • Negotiating with property sellers or developers.

  • Escrow services (to ensure your money is only paid out to the seller if all conditions are met).

  • Administration of the buying process and the paperwork involved.

  • Mortgage negotiation and administration of interest payments.

  • Property management, or delegation to third-party property managers.

  • Tenant management, including advertising the property to potential renters.

  • Maintenance and renovations, including the creation and maintenance of renovation funds.

  • Rent collection, and distribution of rental income to co-owners after costs are deducted.

  • Administration of co-owner general meetings.

  • Proxy services for investors unable to attend meetings.

  • Assistance with the sale of co-ownership sales.

  • Assistance with the sale of the property at the end of the investment term.

Which real estate crowdfunding services operate in Switzerland?

There are currently three Swiss service providers which specialize in real estate crowdfunding and offer the standard co-ownership model. These are Crowdhouse, Crowdli, and foxstone.

What are the costs of real estate crowdfunding?

Crowdfunding service providers charge fees. Some fees apply just once, while others are ongoing. The most important fees to look at before you invest are:

  • Sales commissions: Like real estate agents, crowdfunding platforms charge a one-time commission every time you buy a property through them. This fee is generally based on a percentage of the amount you pay for your share of the property.

  • Asset management fees: Some platforms charge an ongoing administrative fee for managing the business associated with your property. This fee may be based on a percentage of the property price, or a percentage of the rental income generated.

  • Property management fees: Platforms may partner with property managers or provide this service themselves. The fees are generally based on a percentage of rental income.

In addition to fees charged by crowdfunding platforms, there are other costs which are deducted from rental income:

  • Mortgage interest: Platforms generally partner with specific banks to obtain mortgages, so the platform you use directly affects the interest you pay.

  • Renovation fund: A percentage of rental income is deducted and placed in the building’s joint renovation fund. This fund is used for periodic renovations. Some service providers (like Crowdhouse) combine the renovation fund with a buffer which allows them to continue paying out yields over periods during which a property is not being rented.

  • Maintenance: Repairs and maintenance may be handled directly by the crowdfunding platform or third-party property managers and billed to all co-owners.

How much do I have to invest?

The minimum amount you can invest in a property varies between real estate crowdfunding platforms. You can find the exact amounts in the table below.

In every case, a primary mortgage is used to leverage the investment. You and your fellow co-owners only have to provide the capital required to cover the remainder of the purchase price.

What happens if not enough investors want to buy the property?

Real estate crowdfunding platforms make use of third-party escrow services from banks. If the platform finds enough investors to buy a property, the transaction goes through. If not, the money is returned to you as the investor.

What obligations apply to co-owners?

Real estate crowdfunding is not an entirely passive investment vehicle. As a property’s legal owner, you or an appointed proxy must attend co-owner general meetings (normally once per year). Some crowdfunding service providers offer proxy services for meetings. Your involvement may also be required when larger costs or legal issues arise.

What happens at the end of the investment term?

Platforms generally purchase properties with the goal of selling them at the end of a predetermined investment term. This is typically between 7 and 10 years. If the property gains in value by the end of the investment term, you may make a capital gain when it is sold (in addition to possible rental income during the investment term). However, whether or not you make a return on your investment also depends on the total costs. 

Real estate crowdfunding platforms generally manage the sale of the property for you. However, they cannot force you to sell a property. Co-owners can vote on whether or not to sell, in keeping with laws governing property co-ownership.

What are the risks of real estate crowdfunding?

  • Risk of loss: There is no guarantee that you will earn a return on your investment. Depending on how the property’s value and expenses develop, you could end up making a loss.

  • Insufficient occupancy: The target returns are generally based on the assumption that the building will be fully rented out. If the property only ends up being occupied for part of the investment term, you will earn less dividends on your investment than the projected returns would indicate. If it does not get rented out at all, you will not earn any rental income. This risk can be mitigated to some extent by dividing your investment between a number of properties in different locations.

  • Costs: Owning real estate costs money. The costs of maintenance, renovation, and administration continue to apply whether or not the property is rented out. Real estate crowdfunding investments are leveraged by mortgages, and mortgage interest must be paid regardless of occupancy rates. You must also be prepared to cover unexpected costs such as legal expenses, liability claims, damages or breakdowns which are not covered by insurance. When you use real estate crowdfunding, you also have the service provider’s fees to pay. You can find a breakdown of fees and charges for standard real estate crowdfunding offers in the box below.

  • Liability for mortgages: Co-owners typically share joint liability for the shared mortgage. If one co-owner fails to meet his mortgage payments, the other co-owners are liable for the debt. However, there are exceptions to this rule: With Crowdhouse, for example, mortgage liability is limited to your share of the mortgage.

  • Dependency: Even if you are a property’s legal co-owner, which is the case with standard crowdfunding, the strong dependence on the crowdfunding service provider poses some risks. A bankruptcy of the service provider, for example, could seriously disrupt the investment process. The way that the investment is structured and the service provider’s terms and conditions all play a role in determining how risky the investment is. For example, it is important to understand whether or not the crowdfunding company is also a co-owner and if so, whether it has a controlling stake. You should also understand whether or not a property’s co-owners can choose to stop using the crowdfunding company’s services, and how this would impact the investment. Consulting a property lawyer can help you better understand the potential risks of using a specific crowdfunding service provider.

Which factors should I consider when using real estate crowdfunding platforms?

As a first step, you will want to get independent information about crowdfunding services from reliable sources. Also take time to carefully review each service provider’s terms and conditions before you commit.

The minimum investment amount per property is an important consideration. A low minimum requirement lets you diversify across multiple properties even if you do not have very large amounts of capital.

Target returns should not be a primary factor when choosing a platform, as there is no sure way of knowing that these targets will be met.

Comparing total costs is also important. This can be difficult because fee models vary between platforms. This chart provides an overview of the most important differences between Swiss real estate crowdfunding platforms.

 

Service provider Minimum
investment amount
One-time costs for
property purchase
Ongoing asset
management fee
Ongoing property
management fee
Portion covered
by a mortgage
Target return Renovation/security fund
Crowdhouse CHF 100,000 3% of transaction value plus
variable supplemental costs
  5-7% of generated income 45-66% 5-7% per annum 5% of net rental income
Crowdli From CHF 10,000 3% of transacted price plus
0.6% for supplemental costs
1.5% of rental income 4-5% of annual rental
income plus VAT
50-60% 5-6% per annum 0.5-1% of purchase price
plus 1% of net rental income
foxstone From CHF 10,000 3% of purchase value plus
0.05%-0.25% for supplemental costs
0.15% of asset value per annum   66% 4.5-6.5% per annum Variable

 

How is standard crowdfunding different from real estate funds?

Real estate funds are a long-established vehicle for investing in Swiss real estate. Unlike real estate crowdfunding, you do not own real estate or hold title deeds. Instead, you buy shares in a fund which invests in real estate. If the fund makes a return on its property investments, it may pay out shareholder dividends. The value of your shares in a fund may also increase, in which case you could make a capital gain by selling your shares.

You can easily buy and sell shares in Swiss real estate exchange-traded funds (ETFs) using affordable Swiss online trading platforms. Index funds and actively-managed mutual funds are also available.

Major advantages of using real estate funds over standard crowdfunding include:

  • Liquidity: You can quickly and easily sell your shares for cash. With real estate crowdfunding, on the other hand, a willing buyer for your co-ownership share in a property must be found before you can cash out. 

  • Diversification: Since real estate funds typically invest in hundreds or even thousands of different properties, they are not dependent on just one or a handful of properties being rented out.

  • Convenience: As a shareholder in a real estate fund, you simply hold shares in the fund. You do not have to put your name down on legal documents and title deeds or make decisions about how properties should be managed. In general, less time and effort is required.

  • Security: As an actual co-owner of a property, which is the case with standard crowdfunding, you carry the risk of being forced to come up with money to cover ongoing expenses if these end up not being covered by rental income. You are also vulnerable to unexpected costs. With real estate funds, on the other hand, you generally will never have to make ongoing or unexpected payments.

While the shareholder dividends of real estate funds have historically been lower than the target annual returns of crowdfunding platforms, the costs are also generally lower. It is also worth noting that because real estate crowdfunding is a new investment type, there is not yet enough historical data to conclusively show whether or not target returns are actually met. 

The average total expense ratio (TER) of Swiss real estate funds is around 0.75%, but actual TERs vary between funds. Note: Swiss real estate investment funds typically have ongoing, flat annual management and administration fees in addition to their TERs. One-time sales charges are also common. These additional fees can add a significant ongoing cost, so it is important to account for these in your calculations. In many cases, total annual costs can equal 1% of the investment’s value, or even more.

A possible disadvantage of real estate investment funds is that you do not own actual property or hold title deeds. This means you do not directly own tangible assets. The performance of your investment is also heavily dependent on how the fund is managed.

Alternative crowdfunding models explained

A number of other real estate crowdfunding models exist in addition to the standard co-ownership model. The same crowdfunding company may offer more than one different model.

  • Joint-investment: The crowdfunding company itself invests part of the money, while one or more other investors provide the remaining capital. In this case, investors share ownership with the crowdfunding company.

  • Bond-based crowdfunding: In this model, a crowdfunding company issues bonds. The capital raised is invested into real estate. The real estate is the company’s property, which uses part of the income generated to pay interest on the bonds. Bonds are typically participating bonds which pay out additional performance-based dividends in addition to fixed interest.

  • Construction crowdfunding: Investors participate in a new construction project by providing a property development loan or venture capital. When the real estate is sold, investors receive a portion of the profit based on their investment.

Some real estate crowdfunding services (like immozins and Liechtenstein-based company Crowdlitoken) offer one or more of these, but do not use the standard co-ownership model.

Each of these alternative models has its own set of risks and peculiarities which are not covered in this guide.

More on this topic:
What to consider when buying property in Switzerland
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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.
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