A 6% yield on yesterday’s price: what is your property capital earning today?
An owner who bought long ago may show a strong return on the original purchase price. The real question is what the tied-up capital earns today and what a sale would actually release after debt, costs and reserves.
The essentials
- 6% on the original purchase price does not automatically mean 6% on today’s market value.
- A new investment starts with sale proceeds after debt, costs and reserves.
- Rental yield, return on equity and development profit are different measures.
Yesterday’s purchase price does not decide the next step
A property bought cheaply may show an attractive return on the original purchase price. That looks impressive, but it answers only part of the question. It says something about the past, not yet about the best use of capital today.
My point is straightforward: an existing asset should not only be compared with its historical entry price, but also with what a realistic sale would release today and what alternative use that capital would have. This is not a call to sell at any price. It is a call to do the capital calculation correctly.
The same rent, a different denominator
Our example: original purchase price CHF 2,000,000, assumed current sale value CHF 4,000,000 and annual rent CHF 120,000 before costs. That gives a 6% gross rental yield on the original price and 3% on current value. It is the same property and the same rent.
The 3% does not mean the original purchase was a poor decision. It shows how recurring gross income sits relative to today’s asset value. This simplified example excludes any later historical investments; in a personal calculation they belong in the cost base.
CHF 120,000 annual rent: 6% or 3%?
On CHF 2,000,000 purchase price
6 %On CHF 4,000,000 current value
3 %Our example: CHF 120,000 annual gross rent divided by the respective capital base times 100. Before property costs, financing and taxes. Current value is assumed, not observed market data.
What a sale really leaves behind
From the assumed CHF 4,000,000 sale price, deduct a CHF 1,000,000 mortgage, CHF 100,000 in sale and loan-exit costs, and an illustrative CHF 200,000 tax reserve. The planning amount available for reinvestment is CHF 2,700,000.
The reserve is neither a tax rate nor a personal tax calculation. Any early mortgage repayment charge also belongs in the sale calculation. What matters is not the gross sale price, but the capital that is actually available after the transaction.
What capital is available after a sale?
Assumed sale price
CHF 4'000'000After mortgage repayment
CHF 3'000'000After costs and tax reserve
CHF 2'700'000Our sale-date model: CHF 4,000,000 − CHF 1,000,000 mortgage − CHF 100,000 sale and loan-exit costs − CHF 200,000 tax reserve = CHF 2,700,000. All amounts illustrative; tax reserve requires individual assessment.
Holding can still be the right decision
If CHF 120,000 of rent leaves CHF 70,000 a year after CHF 30,000 of running costs and maintenance reserves and CHF 20,000 of interest, this equals about 2.6% of the hypothetical CHF 2,700,000 net sale proceeds. This assumes no principal repayment, excludes personal taxes and does not include a change in property value.
This measure is used only to compare the current cash flow with the net sale proceeds forgone. It is neither gross rental yield nor a complete return on equity. Stable cash flow, manageable workload and a lack of comparable alternatives may all support holding the asset.
A new project needs time, capital base and a loss case
My point is not to sell a sound property at any price. Released capital can open up other opportunities, especially projects built for sale. But whether they are better depends only on a complete calculation over the same time period.
Assume CHF 1,000,000 of the available CHF 2,700,000 is invested in a project at the outset. After 24 months, the base case returns CHF 1,250,000 including capital: a CHF 250,000 gain, 25% over the full period, or roughly 11.8% annualised. The annual rate is (1.25 to the power of 1/2 − 1) × 100, with no interim payments.
The chart also shows a CHF 1,050,000 repayment and a loss scenario returning CHF 850,000. These correspond to total two-year returns of 5% and −15%. All repayments are illustrative assumptions after project, financing and disposal costs, before personal taxes. If the project is delayed, the annualised return changes too.
The remaining CHF 1,700,000 stays uninvested in this model and earns no interest. So the 11.8% is not a return on all released wealth. FINMA highlighted affordability and property valuation as key mortgage risks on 22 May 2025. The reminder is useful: debt can magnify equity gains, but it can also magnify losses.
Project: repayment after two years, including capital
Initial capital invested
CHF 1'000'000Base scenario · +25% total
CHF 1'250'000Weaker outcome · +5% total
CHF 1'050'000Loss scenario · −15% total
CHF 850'000Our scenarios: CHF 1,000,000 invested initially, one repayment after 24 months, no interim payments. After project, financing and disposal costs, before personal taxes. Bars show repayments including capital, not just profit. The remaining CHF 1,700,000 stays uninvested in this model and earns no interest; no forecast or return promise.
Common questions
Can a 6% gross rental yield be compared with a 25% project profit?
Not directly. Here, 6% is annual gross rent relative to the historical purchase price; 25% refers to project capital over two years after assumed project costs. Time, capital base, costs, taxes and risk must be aligned.
Does this mean older properties should be sold?
No. The point is to review how capital is deployed today. Holding may be equally sensible. The scenarios are calculations, not offers or guaranteed returns.
Sources & further reading
General information. Examples and assumptions do not replace a review of your business or individual legal, tax and investment advice.
Prepared with AI assistance and editorially approved before publication.
