Auctioning apartment buildings below market value: potential for investors

Why Multi-Family Houses from Auctions are Exciting for Investors

Multi-family houses (MFH) are among the most profitable yet rarest properties in Swiss foreclosure auctions. They combine predictable cash flows, inflation protection through indexed rental agreements, and the opportunity to purchase below market value. For professional buyers, the leverage is doubly attractive: a favorable entry price lowers the capitalization (Cap Rate) and simultaneously increases the equity return after renovation or optimization measures.

Market Dynamics 2021–2024: Small but Valuable

The auction segment is manageable, yet MFH moves considerable volumes. The past years show three patterns:

Rare Opportunities: Only a few dozen MFH are auctioned each year – the vast majority of auction properties are residential houses and condominiums.
Above-Average Ticket Sizes: Average market values of MFH are clearly above typical single-family homes or apartment units.
Volatility by Year: Individual properties with high valuations noticeably impact the annual statistics (variation due to location, condition, use mix).

Key Figures for Multi-Family Houses in Foreclosure Auctions (2021–2024)

Year	Number of MFH	Average Market Value (CHF)	Volume (CHF)	Market Context
2021	33	≈ 2.42 million	≈ 77.6 million	Re-opening after pandemic; high overall activity in the auction year.
2022	21	≈ 8.96 million	≈ 188.2 million	Few very large MFH drive the volume; selective top properties.
2023	22	≈ 1.63 million	≈ 35.9 million	Normalization; smaller to medium properties dominate.
2024	16	≈ 1.59 million	≈ 25.4 million	Limited supply, stable price range.

Note: Market values are estimates from the enforcement office and do not necessarily reflect the final auction price. The actual “discount to market” depends on competition, property condition, and financing security.

Where the Entry is Worthwhile: Regional Hotspots

Auction activity is traditionally concentrated in the south and southwest. For MFH investors, these patterns are particularly relevant:

High Activity & Selection: Ticino (TI), Vaud (VD), Valais (VS), and Bern (BE) regularly see the most proceedings. More proceedings mean more comparison options and better negotiation tactics.
High Auction Rate per Inhabitant: TI, Jura (JU), Solothurn (SO), Glarus (GL), VS – interesting opportunities for "underdog" locations with solid cash flows.
Price Level & Premium: In Zurich (ZH), Geneva (GE), Zug (ZG) MFH are rarer and more expensive; the discount to market is possible but competitive. In Aargau (AG), Thurgau (TG), St. Gallen (SG), Fribourg (FR) and Neuchâtel (NE), “value-add” cases are more frequent.

Pragmatic approach: In premium cantons, check if a limited but high-quality offering is the goal (value preservation, low vacancy). In cantons with above-average auction activity, focus more on yield drivers (rent, vacancy, Capex leverage).

Using Seasonality: When to Observe, When to Pounce

Seasonal patterns repeat: June and October are regularly high-volume months, while July/August are weaker. For the pipeline, this means: have your due diligence and financing ready in spring/early summer to efficiently use the tight auction windows.

Economic Levers: From Valuation to Yield

The Three Central Yield Drivers

Entry Price vs. Market Value: The final bid below estimated value is possible but not guaranteed. Real discounts occur mainly in complex cases (renovation backlog, legal peculiarities, low bidder competition).
Rental Income & Vacancy: Stability counts. Cantons with solid demand (ZH, VD, BE) offer lower vacancy; in peripheral regions (GL, JU, SO) property quality and micro-location are decisive.
Capex & Energy: Investments in building shell/technical systems (heating, insulation, windows, photovoltaics) increase net rental efficiency and the buyer pool upon exit – especially in markets with an ESG focus like ZH, GE, Basel-Stadt (BS).

Example: Quick Profitability Check (Simplified Model)

Parameter	Market Purchase	Auction (below MW)
Purchase Price	1,850,000 CHF	1,550,000 CHF
Annual Rent (Actual)	96,000 CHF	96,000 CHF
Vacancy/Bad Debt	2%	2%
Operating Costs (non-recoverable)	8,000 CHF	8,000 CHF
NOI (simplified)	86,080 CHF	86,080 CHF
Gross Cap Rate	4.65%	5.55%
Capex Annual Budget (Avg)	15,000 CHF	15,000 CHF
Net Cap Rate (after Capex)	3.84%	4.58%

Even with the same operating results, the lower entry price significantly raises the ongoing return. If you also increase the rental income (e.g., through renovation or better marketing), the Cap Rate shifts further in favor of the auction scenario.

Deal Profiles and Suitable Regions

Core/Core+ Cashflow: Dense job markets, low vacancy, high demand security – focus on ZH, BS, GE, ZG. Discount is smaller, but stability and exit liquidity are high.
Value-Add: Solid mid-size centers with optimization potential – AG, TG, SG, FR, NE, LU, BE.
Opportunistic: Higher auction rate per inhabitant, selective micro-locations – TI, VS, SO, JU, GL, Grisons (GR).

Technical, Legal and Financial Due Diligence – Focused on Auctions

Technology & ESG

Building Shell & Building Technology: Heating system (Oil/Gas vs. Heat Pump/District Heating), insulation standard, windows, electrical/risers, water/sewage.
Energy & Roof: PV potential, roof stability, renovation cycles (facade, roof, pipes).
Apartment Mix: Unit sizes, floor plan quality, turnaround effort during tenant change.

Law & Usage

Current Rents & Rental Agreements: Indexation, utility cost logic, escalations, any rent adjustments following investments.
Building Rights & Use Reserve: Zoning regulations, densification opportunities, changes of use (e.g., conversion of attics).
Mortgage/Loan: Rank relationships, easements, ongoing proceedings (access to auction conditions).

Financing

Affordability & Interest Rate Strategy: DSCR stress test (interest +200–300 bp, 10–15% rental default, +20% Capex).
Refinancing Ability: After stabilization (leasing/renovation), transition to long-term financing at lower margins.

Step-by-Step to a Successful Auction

Build Pipeline: Monitor relevant cantons (TI, VD, VS, BE), secure dates and files early.
30-Minute Check: Roughly quantify rent, vacancy, Capex; exclusion criteria (location, statics, legal limitations).
Term Sheet with Bank: Preliminary clarification of collateral/rate; organize bidding security (down payment).
Bidding Strategy: Derive maximum price from NOI/Cap Rate – Capex – Risk Premium; strict discipline on the auction day.
Plan B: In case of being outbid, immediately check next alternative in the same canton (pipeline redundancy).

FAQ: Frequently Asked Questions from MFH Investors

How realistic is "below market value"? In competitive cantons (ZH, GE), discounts are smaller. In regions with high auction rates (TI, JU, SO), opportunities are better – provided financing and due diligence are in place.
How do I deal with renovation backlogs? Integrate Capex into the calculation, reflecting it with rental development (after investment) and exit Cap Rate.
What property sizes are typical? From small MFH (4–6 units) to larger properties. Large individual deals can distort annual volumes.

“Auction success is rarely by chance. Those who structure their pipeline across cantons, prepare financing, and bid strictly according to cash flow/Capex criteria achieve better deals – especially with multi-family houses.”