4. Real Estate
Rental properties are the first of three different real estate-based passive income streams we will now look at.
Generally, when people talk about real estate, most probably think of rental properties. We have included it on this list, even though it is not always that passive.
Rental properties usually require a large amount of capital upfront, and then there are high overhead costs to manage these. You can either go the commercial route, renting to businesses, or the residential rental route, renting to families or individuals. Both options require repair and maintenance and, as mentioned previously, can cost significant time and money.
How can you get around the headache and upfront cost of managing rental properties? There are 2 options available:
REITs, although not issued in Switzerland, might be an excellent course to take, being traded on stock exchanges around the world. Similar to mutual funds but with a pure real estate focus, REITs are funds that own, operate or finance commercial real estate. This includes office buildings, factories, storage facilities, shopping malls, and hotels.
REITs are truly passive. You do not actually manage or operate the properties yourself, thereby saving you time and unexpected direct costs. REITs can vary in complexity and accessibility. For new investors, it might be best to go for publicly-traded REITs, which you can purchase through an online broker.
However, publicly-traded REITs had their worst year in 2022 since 2008, with the FTSE All Equity REIT finishing 2022 at -24.95%. Of course, they were not alone in their poor performance, with the entire market struggling due to the uncertainty surrounding the possible upcoming recession. Yet many real estate fund managers are bullish on REITs heading into 2023, believing that the recession has already priced into REIT stocks, meaning these are well-positioned for a comeback.
Comparison of REITs vs stock and bond markets performance
2) Real estate business
This is something similar to direct ownership, except that investors are buying a share in a limited liability company (specifically set up to invest in real estate) or a project curated by that company. This presents a way for you to lessen legal liability, diminish property upkeep tasks, avoid dealing with troublesome tenants, and so more on.
Le Bijou is one of these options. Its operational model uses tech-enabled real estate to address the problems of vacancies, significant upfront capital, and high overhead costs.
You can explore three of their active offerings below:
- Lucerne Portfolio - Switzerland's tourist hotspot; this portfolio benefits from all of Le Bijou’s perks, like diversified revenue, no rental caps, and an “inflation-ready” business model.
- Zurich Portfolio - This portfolio already includes operational locations like Bahnhofstrasse 18, Lintheschergasse 23, Limmatquai 80, etc. It has a strong track record netting close to 12% ROI per year and the portfolio is growing. For reference, Switzerland’s performance benchmark is around 3-4% (net).
- Schauplatzgasse 22, 3011 Bern - A development project connecting the main train station with the Swiss government. The top floors will be used as an apartment hotel while the ground floor will be operated as a high-end coworking space.