Why should you invest in second home?

In India, owning a second home might seem to be a luxury of the wildly rich sections of the society, but this is not always true. At times people purchase a second house for different reasons like in order to fix it up and sell it out at a big profit or may be to rent it out or may be to keep it as an investment for future. For some individuals, two houses may seem to be a great option but for the wrong home owner things can go astray.

In a country like India, investment in real estate just does mean making money or profits rather people get emotionally attached to their properties. While the first house is a must have for everyone, to invest in a second home is really considered advisable. This article tries to explain in a most respectful manner the difference between a second home and an investment property why should one invest in second home in India.

Consistent growth of property market over the past 50 years.

The realty market of the country has grown exponentially at the rate of minimum 10-15% every year since that past 50 years. This exponential growth is not possible in any other investments apart from equities or shares that are also subject to market risks.  Thus in such a situation, investing in real estate sector in the form of a second home in India is certainly a very wise move.

Second home serves as a tax barrier

Investing in a second home in India brings with it several tax benefits. Though these tax profits are smaller than the investment made in the house, but it helps save the tax money to some extent.  To begin with, the rent received from the second house minus 30% for maintenance work can be adjusted towards the interest paid on the home loan taken for the house. And in case the rent received is lesser than the amount of interest paid on the home loan than the resultant “loss from the second house” can be set off against your regular income. Hence there it provides a tax hedge until the house starts paying for itself.

In case the second house is sold at a profit, the acquisition cost is deducted from the selling price and tax is calculated only on the remaining figure.

Serves as an investment leverage specially for salaried professionals

Amongst all other forms of investments namely fixed deposits, gold, equities or mutual funds, purchasing a second home is the only form of investment under which advantages are provided to salaried class to buy a house by putting only 20% of the cost of home and the rest 80% can be raised through a home loan.  In other forms of investments the investors need to invest all their savings from their end whereas in case of a second home the financial leverage is provided and especially to salaried professionals.

Investing in a second home is financially profitable

Whenever we make any investment, our main motive is to earn profits on it and with the same mindset we purchase a second house. This second home project turns out to be financially advantageous as we just shell out 30% of the cost of home (20% for down payment and 10% for other financing expenditures). Over this we make earnings of 3% by renting it out and the property appreciates every year at the rate of 10% which overall comes out to be a lucrative proposition.

Psychological factors

Another important emotional factor is that the realty prices do not fluctuate on a daily basis and there are no other markets that do not fluctuate on daily basis. Thus a second home becomes a comfortable and a long term asset to invest in.

Retirement

Financial experts suggest that one must save large sum of money before one retires or purchase of a second home is a good investment option. People who are on the verge of retirement should think of the advantages of buying a second home before they stop working as it is easier to get a home loan approval when you have a fixed source of income. Also before retirement, you can generate rental income from your second home. The most important factor to be kept in mind while choosing a home before retirement should be its location. Always decide on a location where you would finally want to settle down, and is the one that meets both your demand and needs, taking into consideration the cost of living, climate, social and civic utilities as well as the municipal facilities. One should even evaluate the property from the potential resale value side based on its location, floor plan and community comforts. Low maintenance houses with living space on a single floor so that the retirees can avoid climbing stairs can be an advisable option. One can visit the second home once before retirement, in order to set up all sorts of electrical connections, to rent it out and make adjustments for the home loan.

Vacation rental

A second home at a place like Goa besides a beach or a mountain home to let you escape from the blazing heat of the plains or at a waterfront property, or prime golfing location, historical spot, wildlife retreat or national park hiking are some of the many reasons why a person would pick their vacation spot. Buying a second home in any of these areas and further renting it out will help managing the home loan besides generating the rental income from others who need a good break and want to relax from the hustle bustle of their daily lives.  

Family getaway

For larger families or a group of friends spread across the country reunions, holidays or vacations are a way of getting connected. In such scenario a second home at a faraway location for a family retreat can also be a good option to enjoy an affordable vacation.

Reverse it

As they say, a change is always good. One can also consider doing a reverse- living in your second home while renting out your primary residence in the city. Moving out to a lesser populated area can mean lesser level of stress apart from lower cost of living. For some or the other reason, one might have to shift to the remote area while the city house can be given on rent, which can fetch you a higher amount of rent comparatively. And once you think of getting back to the glam and glitz of the city, you can shift back again. Either way, but you can enjoy the rental income in both the locations.

Hence this kind of property investment in a second home is always practical as it secures your future but not in all the cases. Before investing, one must take time to do an extensive research, understand the market, analyze financials, so that the new loan does not turn out to be an added burden in the future. Always think over the area of the house very carefully before buying in order to get a feel of the location and figure out whether its neighborhood appeals to you.

Irrespective of all factors, a second home in India is a recommended move. In India, owning a home denotes stability and social status and considering the fact that the realty industry is stable, a second home is a safe and comfortable investment which should be thought of by anyone and everyone having surplus finances.