No matter if you want to buy a second home for investment purpose or if you want a relaxing place of your own away from the hustle and bustle of city life, read on to know some of the most important things that you consider before buying a second home.
Real estate has always been known as one of the best forms of investment. This is the reason why an increasing number of Indians after purchasing the first home for self-use now want to invest in the second property. Apart from the investment point of view, there is also a growing trend of having a second vacation or weekend home outside the city boundaries to unwind and relax.
No matter what your reason for purchasing the second house is, it is important to make sure that you thoroughly understand what you are getting yourself in. Here is a list of 5 crucial things that you should know before purchasing your second property-
- Affordability
Undoubtedly one of the most important factors you must consider while buying a second home is affordability. If you are in your 30s and 40s, you might still be paying the EMIs of your first housing loan. So, it is essential to ensure that you’d be able to afford the EMIs of the second loan without compromising your current lifestyle. If you have been saving for this purchase for some time now and have solid reasons to believe that your income will increase soon, you can go ahead with the purchase.
- Reason for Purchase
It is imperative to know the reason why you are purchasing the second property. Are you buying it for self-occupation or as an investment? If you are doing it for investment, you should check how the second property will fit in your current investment portfolio and how it can help you achieve your financial objectives.
In most cases, real estate investment is not able to deliver significant returns in the first few years. So, a second home might not be a prudent option for your short-term goals. But the increase in the value of the property and the rental yields after a few years can be beneficial for your long-term objectives.
- Know the Area Better
If you are planning to buy your second home away from your current location, especially outside the city limits, you should also try to know the area and locality better. You should always prefer areas where there will be considerably infrastructure development in the future.
In most cases, areas close to planned corporate hubs, educational zones, metro stations, airports, and railway station are known to deliver excellent returns. If you plan to let out the property on rent, also try to understand the average rental yields in the area. Talking to a local real estate agent can provide valuable information.
- Tax Breaks on Second Home Purchase
You should also know the tax benefits available for the second home purchase. Your total taxable income can be reduced by claiming the loan interest as an expense from your rental income. This benefit is over and above the standard deduction, which is available for the maintenance expenses.
Moreover, if you rent out the second home, you can also get a wealth tax exemption as you will be having two properties on your name. But to use this benefit, you will have to make sure that your property is let out for at least 300 days in a year. Also, the home which has a higher annual value can be treated as self-occupied for further reducing the tax liabilities.
- Purchasing Home Insurance
Most people consider home insurance an unnecessary expense. But while you might not have bought home insurance for your current home, it is essential to get one for your second home, especially if it is away from the city limits and will remain vacant.
As you will not really be visiting your second home regularly, it is imperative to make sure that it remains protected. With home insurance, your expensive second house would remain protected against natural and human-made calamities. Most of the home loan providers generally also offer home insurance. You can talk to your lender about the same.
