A second home investment is always a privilege and a rewarding experience. But before you indulge in the second home investment, make sure to weigh out the pros and cons and the needs or requirements for the investment. It is important to set your priorities right and set the purpose clear for the second home investment, before getting into the location and the kind of property.
2 main reasons for a second home investment.
- As an additional investment over the long-term period.
- To use the property for one’s own purpose or to rent it out.Sometimes second homes even turn out to be weekend homes or properties invested in for rental income. Say for example, a home near a beach, a home at a hill station, or a home near a golf course.
A few prime factors one must consider while looking for a second home is.
3. Legal implications
5. Resale scope
6. ROI prospects
Different segment of buyers prefers a second home investment as per their long-term real estate property goals. A segment believes in luxury house investment, while another believes in a smaller investment while another believes in a plot or land. All these investments are based on the purpose for which the property investment is being made.
For a few, a second home also represents a post-retirement recreation option, or as an opportunity to pursue one’s hobbies and interests in their leisure time. Second homes are also increasingly viewed as a long-term investment option, for rental income as well as ROI through capital appreciation.
Key pointers that will impact your second home investment
1) Entry level price and rental yield
The profits on a second home will depend on the location, the segment and the probability of renting out the unit. Renting may happen regularly and easily if it’s a realty or holiday hub. However, of the cost of buying the unit itself is high, it impacts the ROI.
In a similar manner, buying a second home at a location where the cost of the unit is lower comparatively, may result in less frequent renting and hence lower rentals.
Hence to strike a right balance, buying a second home should be all about price-points not being too expensive and rental incomes and return on investment (ROI) being higher.
2) Income tax laws
As per the financial year 2017-18, the maximum deduction on interest is now capped at Rs 2 lakhs against the earlier, entire interest that was tax-free.
There is a provision to carry forward the losses in 8 consecutive financial years, but even with this carry forward facility, it will still be a loss-making venture for those trying to buy a second home with loans. Since the interest on loans, as well as on rental income, will become taxable.
The best option would be to
1. Check your investment portfolio and
2. Plan your finances
Hence with tactful planning, you can enjoy the benefits of a second home, without burning up your hard earned cash or making losses on the investment.
3) Infrastructure development
Striking a right balance may not be an easy task. When there are so many factors affecting prices and the property market.
Factors to be taken into consideration are
1. Population growth
2. Upcoming projects and infrastructure development in the neighbourhood
4. Recent legal and law implications
5. Affordable pricing
Generally, higher rentals and ROI can be expected from realty hubs, near educational and corporate zones, prominent landmarks and government projects.
Important things to consider before going in for a second home investment
– Credibility of the builder
– Arranging for finances, especially loans
– Location and unit size
– Income tax implications
– Maintenance and parking charges
– Municipal taxes
– Availability of public transport
– Rental demand
– ROI and capital appreciation
Recent changes in tax laws
In the financial year 2017-18, changes in tax laws have changed the home buyers’ outlook on second homes investment.
- Deduction of Rs 2 lakhs, available on home loan interest is now same, for both,
rented and self-occupied property.
- Moreover, the loss on house property that can be reduced from ‘income from other sources’, is confined to Rs 2 lakhs only.As a result, many salaried employees and businessmen, who were looking for second homes as an investment opportunity so that they could reduce their tax liability, are now looking for other options to earn returns. Buying a house, be it a first time home investment or a second home investment, HousingMan helps you find an ideal property of your choice. HousingMan property sales advisors understand your needs and requirements and after careful analysis suggest you the best as per your house goals so when you are buying a home you are absolutely well-informed and make a concrete decision.Be it a weekend home or a second home, buying a house has never been easier. With HousingMan you are sorted when it comes to all kinds of real estate property options.