The Buehler family is facing a decision that many property owners eventually confront. Their multi-family building in Aarau, built in 1978, has served them reliably for 22 years. Six apartments, all rented out, solid cashflow. But now the problems are mounting. The oil heating system is at the end of its lifespan. The facade is crumbling. Some windows are leaking. The plumber shook his head during his last visit and said: "These pipes might last another three or four years."

The architect has provided an estimate: CHF 280'000 for a comprehensive renovation. Heating replacement (heat pump), facade insulation, new windows, partial renewal of the plumbing. The Buehler family does not have the money in their account. They would need to increase their mortgage or pull equity from another investment.

The alternative: sell. The building in its current condition, with renovation needs, and invest the capital elsewhere. Or find a buyer who will take on the renovation themselves.

What is the right decision? There is no blanket answer. But there is a structured approach that helps you answer the question for your specific situation.

Step 1: Honestly Assess the Renovation Needs

Before you think about renovating or selling, you need to understand the actual condition of the building. Not approximately, but systematically.

Distinguish between three types of renovation needs:

Urgent (within 1-2 years)

Defective heating system
Leaking roof
Mould infestation
Faulty electrical installation
Lift with safety deficiencies

Medium-term (3-5 years)

Outdated kitchens and bathrooms
Facade insulation
Window replacement
Plumbing

Long-term (5-10 years)

Aesthetic upgrades
Balcony extensions
Floor plan modifications
Attic conversion

For the Buehler family, the heating falls into the "urgent" category, the facade and windows are "medium-term," and the plumbing is on the borderline. The total bill of CHF 280'000 therefore covers measures with different levels of urgency.

Important: Have the renovation needs assessed by an independent building expert, not by the estate agent who wants to sell the building, and not by the tradesperson who wants the contract.

Step 2: Calculate the ROI of the Renovation

The central question is: does the investment of CHF 280'000 generate enough added value to make it worthwhile? To answer this, you need to calculate two things: the impact on rental income and the impact on market value.

Rental Income After Renovation

In Switzerland, you may pass on value-enhancing investments proportionally to the rent. The rule of thumb: 50 to 70% of the investment costs are considered value-enhancing (the rest is maintenance). From the value-enhancing portion, you may add a certain annual percentage to the rent.

Calculation for the Buehler family:

Renovation costs: CHF 280'000
Estimated value-enhancing portion (60%): CHF 168'000
Permissible annual rent increase (benchmark 3-4% of value-enhancing portion): CHF 5'040 to CHF 6'720
Current annual rental income: CHF 108'000
New annual rental income: CHF 113'040 to CHF 114'720

This yields additional rental income of around CHF 5'000 to CHF 6'700 per year. On an investment of CHF 280'000, that corresponds to a return on renovation costs of 1.8 to 2.4%. That sounds meagre, but it is only part of the equation.

Market Value After Renovation

A renovated building is worth more than an unrenovated one. How much more depends on the location and the type of renovation. Typical benchmarks:

Heating replacement (fossil to renewable): Value increase of 50 to 80% of the investment
Facade insulation: Value increase of 40 to 60%
Window replacement: Value increase of 50 to 70%
Kitchen renovation: Value increase of 30 to 50%
Bathroom renovation: Value increase of 30 to 50%

For the Buehler family:

Investment: CHF 280'000
Estimated value increase (60% on average): CHF 168'000
Market value before renovation: CHF 2'100'000
Estimated market value after renovation: CHF 2'268'000

The renovation therefore generates both ongoing additional rental income and a value increase. The total return comes from both.

Step 3: Calculate the Opportunity Costs

Now it gets interesting. The CHF 280'000 going into the renovation could also be deployed elsewhere. Those are the opportunity costs.

Scenario A: Renovate

Investment: CHF 280'000
Annual additional rental income: CHF 6'000
Value increase: CHF 168'000
Total return over 10 years: CHF 60'000 (rent) + CHF 168'000 (value) = CHF 228'000
Return over 10 years: approx. 8.1% p.a. (simplified)

Scenario B: Sell and reinvest

Sale proceeds (less mortgage and taxes): assumed CHF 800'000 free capital
If reinvested in a newer property at 4% net yield: CHF 32'000 p.a.
Or if invested in ETFs (historically 6-7% p.a.): CHF 48'000 to CHF 56'000 p.a.

Scenario C: Sell without renovation

Sale proceeds with discount due to renovation needs: CHF 700'000 free capital
Discount of CHF 100'000 compared to renovated condition
If reinvested at 4% net yield: CHF 28'000 p.a.

This comparison shows: the pure renovation return is often lower than alternative investments. The advantage of renovating lies in keeping the existing property, maintaining tenant relationships, and avoiding transaction costs (transfer tax, capital gains tax on property, agent fees).

Step 4: Understand the Tax Implications

With the "renovate or sell" decision, taxes play a significant role. And in Switzerland, this gets complex.

Taxes on Renovation

Renovation costs can be claimed for tax purposes, but not all equally:

Maintenance investments (e.g. heating repair, painting, replacement of equivalent components): Fully deductible from taxable income in the year of expenditure.
Value-enhancing investments (e.g. extension, additional storey, energy improvements beyond the previous standard): Not deductible, but they increase the cost basis and reduce the capital gains tax on property upon a later sale.
Energy-efficient renovations: In many cantons, these are fully deductible even when they are value-enhancing. Switching from oil to a heat pump often falls into this category.

With CHF 280'000 in renovation costs and an estimated tax-deductible portion of 50% (CHF 140'000), a marginal tax rate of 35% yields tax savings of around CHF 49'000. That is a substantial amount, reducing the net investment to CHF 231'000.

Tip: You can spread the renovation across two tax years to optimise the progressive tax rate. More on the tax aspects can be found in our article on taxes for investment properties.

Taxes on Sale

When selling, capital gains tax on property (Grundstückgewinnsteuer) applies. This taxes the difference between the cost basis (purchase price + value-enhancing investments) and the sale proceeds. The tax is progressive and decreases with the holding period.

For the Buehler family (22 years holding period), the rate would be relatively low, but on an estimated property gain of CHF 600'000, still substantial. Depending on the canton, this could be CHF 60'000 to CHF 120'000.

Tax conclusion: Renovation offers immediate tax advantages (deductions). Selling triggers a capital gains tax on the property. From a tax perspective, renovation is usually more favourable, at least as long as you intend to hold the property long-term.

The Decision Framework

Let us summarise the decision criteria in a structured framework:

Renovating is the better choice if:

The property's location is attractive long-term (stable or growing demand)
The renovation costs are in a reasonable ratio to the building value (below 15-20%)
The financing for the renovation is secured (equity or mortgage increase)
The affordability criteria are still met after the increase
Tax deductions significantly reduce the net investment
You intend to hold the property for at least another 10 years
The tenant structure is good and you want to preserve the tenant relationships

Selling is the better choice if:

The location is losing long-term attractiveness (population decline, oversupply)
The renovation costs are disproportionately high (over 20-25% of the building value)
You can deploy the capital better elsewhere
The holding period is long enough to benefit from a reduced capital gains tax rate
You no longer want to deal with real estate
There are serious structural problems (building fabric, contamination, legal restrictions)

What the Buehler Family Decided

After a thorough analysis, the Buehler family opted for a phased renovation. Instead of investing all CHF 280'000 at once, they prioritise:

Year 1: Heating replacement (heat pump) for CHF 85'000. Urgent, energy-efficient, fully tax-deductible, with CHF 15'000 in subsidies.
Year 2: Facade insulation and window replacement for CHF 155'000. Spread across two tax years to optimise the progressive tax rate.
Years 3-4: Plumbing renewal as needed, CHF 40'000 to CHF 60'000.

This approach has several advantages: the tax burden is spread over multiple years, the financing is easier to manage, and the rent increases can be implemented gradually, which is more acceptable for tenants.

You can run the full calculation for your own property in the immometrics forecast calculator. Enter the renovation costs as a future investment and see how the cashflow changes over the years.

Frequently Asked Questions

How do I calculate whether renovating my investment property is worthwhile?

First, calculate the expected rent increase after renovation (value-enhancing portion x 3-4% p.a.) and the estimated value increase of the property. Then subtract the tax advantages (deductible costs x your marginal tax rate). Compare the total return with alternative investments. As a rule of thumb: if the renovation costs are below 15% of the building value and the location is good long-term, renovation is worthwhile in most cases. Use the immometrics calculator for a detailed cashflow forecast with and without renovation.

Which renovations deliver the highest return?

Energy-efficient renovations (heating replacement, insulation) offer the best ratio of value increase, rent increase potential, and tax advantages, especially because many cantons provide subsidies. Kitchen and bathroom renovations have a strong effect on rentability but a lower value increase relative to cost. Purely aesthetic measures (new flooring, painting) have the lowest return but can prevent vacancy.

Can I fully deduct renovation costs from my taxes?

No, only maintenance costs are directly deductible from income. Value-enhancing investments increase the cost basis and reduce a future capital gains tax on property. An important exception: energy-efficient renovation measures are deductible in many cantons even when they are value-enhancing. Have the allocation done by a tax advisor. More details can be found in our tax article.

How does selling affect the capital gains tax on property?

The capital gains tax on property taxes the difference between your cost basis (purchase price plus value-enhancing investments) and the sale proceeds. The tax rate decreases with the holding period. After 20 to 25 years, the rate is significantly reduced in most cantons. Nevertheless, the tax can be substantial on large gains. On a property gain of CHF 500'000 and a holding period of 20 years, you should expect CHF 50'000 to CHF 100'000 in capital gains tax, depending on the canton.

Renovate or Sell? How to Make the Right Decision