As Indians, we have a tendency to value property investment above all other available options. Purchase of a home has been passed down as advice from one generation to the next since time immemorial. For those who can afford it, purchase of a second (or multiple as the case may be!) home is also considered quite seriously.
But is there a difference to approaching home buying a second time around? What are the considerations that should precede the decision to invest in a second home?
Here is some food for thought for you in case purchasing a second home is on your list of priorities.
Pros:
Owning a home comes with a feeling of pride and a sense of accomplishment. With a second home, those feelings are only multiplied. But apart from the emotional upsides to buying another home, there are some interesting financial benefits as well
- Further diversification in assets portfolio of the individual
- Increase in net worth of individual
- Tax benefits when taking a loan for the second home – In case of ownership of more than one property, one is assumed to be self-occupied and the others are deemed as being let out properties. The entire interest cost on the loan taken for the let-out property can be deducted from the taxable income. Moreover, 30% of the rental income from the second property is exempt from tax as a standard deduction to cover for repairs and maintenance. Other levies such as property tax and municipal tax can also be deducted.
- As an investment, purchase of property is considered to be less risky than investing in stocks
- It serves as an additional source of income when rented or leased out
Cons:
Not everything about owning a second home is hunky-dory. Some aspects to mull over before investing in a second home include:
- Regardless of how purchase of the second home is financed, it is a drain on financial reserves
- Property is considered an illiquid asset. So one needs to consider whether investing in another illiquid asset would suit one’s financial requirements
- Growth rate in real estate is not as rapid as it used to be a few years back.
- Maintaining a second home requires effort which is especially difficult if it is in another city
When buying a second home, few things need to be assessed clearly. First, ascertain the purpose behind the purchase. Is it meant to be rented out? Is it meant to be occupied by family? What RoI do you expect with the purchase of a second home?
Second, assess your current financial situation including investments, cash reserves, current obligations and so on. This should help you determine whether you can afford a second home and how you need to finance it.
Purchasing a second home requires equal, if not more, care and consideration. Ownership of multiple homes can be a source of joy and pride if carried out in a legal and meticulous manner.