High returns and “zero capital”: Swiss company makes risky real estate deals in Germany

400,000 euro flat without equity

Swimmo Invest’s advertising slogan: “Ownership without equity”. A real estate financing tool calculates: Zero capital is required to finance an apartment worth around 400,000 euros; Swiss salary is sufficient. When asked by Swimmo Invest, its lawyers confirmed that “an estimated 80 percent of brokered contracts are 100 percent financing.”

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This is surprising. Especially since the financing barriers are much higher in this country. In Switzerland, according to the self-regulation of the Swiss Bankers Association, investment properties can be loaned at a maximum rate of 75 percent and must be amortized for at least 2/3 of the loan value within 10 years. The difference between the purchase price and the loan to value determined using the lower of cost or market principle must also be covered entirely by equity capital.

Systematically allowing such loans can be dangerous

Thomas Richter, professor of real estate and finance at ZHAW Winterthur, is skeptical of this practice. “It would be dangerous to systematically allow such loans. We saw what lax credit standards could lead to in Switzerland during the property crisis of the 1990s. “If a property is 100 percent mortgaged, even small drops in price are enough to leave part of the loan unsecured.”

At Swimmo Invest they ignore the issue. “Financing banks are responsible for granting such loans and assessing the risk based on the value of the property and the creditworthiness of the relevant applicant,” writes Swimmo Invest. The majority of customers can benefit from full financing by meeting the loan conditions set by banks. Clients are also free to contribute equity to the project.

600 percent return on equity over ten years

Besides the creative form of financing, the promise of returns also makes you think and think: Swimmo Invest talks about 600 percent of the invested capital in case of sale after ten years. In order to achieve such returns, property prices must increase rapidly. This is a credit to Swimmo Invest. “A value increase of five percent per year over ten years is realistic and fact-based,” he writes there.

The properties that will be offered to customers are off-market, that is, properties that are not publicly offered for sale. But the feed offers on the homepage only show projects in remote small towns.

“There is no free lunch,” says Thomas Richter. «If high returns are promised without too much risk, you have to question it. Especially since it is by no means certain that resale value has increased or decreased after ten years. “When making investment calculations, you generally cannot assume that changes in value will have a positive return.” Apart from the risks of vacancy and rent default that can arise at any time.

Buying in a declining market

When real estate prices drop, if you have a high loan-to-value ratio, you lose a lot of equity quickly. For example, if a property has an 80 percent mortgage and property prices fall by 10 percent, the investor has already lost 50 percent of his equity. If there is no equity to start with, there is a risk of over-indebtedness if property prices fall. Additionally, investors are buying into a sinking market. No one knows when the bottom will be reached.

When asked, Volksbank Hohenlohe wrote that Swimmo Invest AG is not a financing partner. There is only an intermediary agreement for the transfer of a limited number of real estate properties to interested parties.