A property can look attractive based on its location and gross rent but still produce weak returns or negative cash flow. Before buying, investors should examine the full acquisition cost, realistic income, operating expenses, financing and future capital needs.

No single indicator gives a complete answer. The purpose of the analysis is to compare scenarios, expose assumptions and identify the conditions under which the investment works—or stops working.

Start with total acquisition cost

Do not analyse the purchase price in isolation. Total acquisition cost can include transfer taxes, notary and land-registry costs, brokerage or advisory fees, financing costs and immediate renovation work. The applicable charges vary by canton, municipality, transaction and buyer.

Gross rental yield: a first filter

Gross yield = annual gross rent ÷ purchase price.

This is quick to calculate and useful for comparing listings, but it ignores acquisition costs, vacancies, operating expenses, renovations and financing. It should be treated as an initial screening measure, not the expected return.

Net yield: income after operating costs

Net yield = net operating income ÷ total acquisition cost.

Net operating income generally means rental income after vacancy and recurring operating expenses, but before financing and tax. State your convention clearly. Relevant costs may include owner-paid utilities, administration, insurance, maintenance, non-recoverable charges and contributions to reserves.

Separate routine operating costs from larger capital expenditure. A building can show an acceptable current net yield while facing major façade, roof, heating or common-area work.

Cash flow: what remains after financing

Cash flow = rental income − operating costs − financing payments.

Cash flow shows whether the property contributes cash or requires additional funding during the period analysed. Include interest and required amortisation consistently. Tax is often modelled separately because it depends on the owner and jurisdiction.

Positive cash flow does not automatically mean a good investment, and negative cash flow is not automatically unacceptable. The result must be assessed against risk, expected capital needs, equity committed and the investor’s objective.

Cash-on-cash return

Cash-on-cash return = annual pre-tax cash flow ÷ cash equity invested.

This measures annual cash generation relative to the investor’s own cash contribution. It is sensitive to leverage: more debt can increase the calculated return on equity but also increases refinancing and interest-rate risk.

Vacancy and rent assumptions

Use achievable rent rather than the most optimistic advertised figure. Check the current leases, payment history, local demand, condition, permitted use and restrictions on rent adjustments. Include a vacancy and collection-loss allowance even when the property is currently occupied.

Maintenance and capital reserves

Review technical reports, renovation history, owners’ association minutes and reserve-fund information where applicable. Estimate both recurring maintenance and irregular major work. If no large expense occurs in the first year, that does not mean its economic cost is zero.

Financing and interest sensitivity

Model the proposed mortgage terms, amortisation and fees, then stress-test higher interest costs and refinancing at maturity. Also calculate the result with lower rent, temporary vacancy and an unexpected repair. An investment that works only under the best assumptions has little margin for error.

Break-even occupancy

Break-even occupancy estimates how much of the potential rent must be collected to cover operating and financing costs. A high break-even level means even a modest vacancy could create negative cash flow.

IRR and sale assumptions

Internal rate of return can combine annual cash flows with an assumed future sale. It can be useful for comparing holding strategies, but it is highly sensitive to the exit value, sale costs, renovations, taxes and timing. Always show the assumptions and compare more conservative exit scenarios.

Illustrative example

Assume, purely for illustration, a purchase price of CHF 800,000, additional acquisition and immediate work of CHF 40,000, and annual gross rent of CHF 32,000. If vacancy and operating costs total CHF 8,000, net operating income is CHF 24,000.

  • Gross yield on purchase price: CHF 32,000 ÷ CHF 800,000 = 4.0%.
  • Net yield on total acquisition cost: CHF 24,000 ÷ CHF 840,000 ≈ 2.9%.
  • If annual interest and amortisation total CHF 21,000, pre-tax cash flow is CHF 3,000 before other investor-specific items.

This example does not predict an outcome. Different definitions, costs, financing terms and tax situations will change the result.

Pre-purchase checklist

  • Total acquisition cost
  • Current leases and achievable rent
  • Vacancy and collection-loss allowance
  • Recurring owner-paid expenses
  • Maintenance and capital-expenditure reserve
  • Net yield and cash flow
  • Cash-on-cash return
  • Mortgage rate, amortisation and refinancing risk
  • Break-even occupancy
  • Conservative sale and downside scenarios
  • Legal, tax and technical due diligence

How Valory can help

Valory Deals helps buyers compare acquisition, financing and operating assumptions before purchasing a property. Valory Properties then supports the tracking of actual income, expenses, mortgages, documents and projects after acquisition, allowing projected performance to be compared with reality.

Conclusion

Gross yield is only the starting point. Net yield shows the property’s operating performance, while cash flow shows the effect of financing. Combine these with vacancy, maintenance, leverage and downside scenarios before deciding whether—and under which conditions—to buy.

This content is provided for general informational purposes and does not constitute legal, tax, financial or investment advice. Rules and outcomes may vary depending on the property, jurisdiction and individual situation.