We list some of the most important points to consider when you decide to buy a second home.
As a home owner, you took a big step a few years ago and bought your first home. But now, you feel the longing to buy a second home, albeit for investment purposes. Though you have found a great home and are excited about it, there are a few nagging doubts in your mind.
It’s time to put your mind at rest with some facts: consider the following points when deciding to buy your second home:
– Is now a good time?
There are phases in every financial year when real estate shows either a seller’s market or a buyer’s market. The latter is seen in times of economic deflation, or stagnation in the market, or supply superseding demand for housing. Wait for these market trends to favour you before you take the decision to invest in a second home. You can also scout for good deals from developers, or festive home loan offers for suitable loan products.
– What is my loan eligibility like?
If you have taken a loan to buy your first home and are still repaying it while buying a second house, your loan terms this time around will be different. Based on how much of your earlier home loan you have repaid, and whether you have other liabilities (credit card/personal/car loans) to repay, you may be offered a lower loan amount and also a higher interest. The home loan rate of interest may be higher depending on the property location, price and type.
– Is there a good offer from a housing finance company?
Housing finance companies and banks offer lower home loan rate of interest, or waiver on processing and loan transfer charges, during the festive period. With the festive season on in full swing, it may be time to capitalise on good home loan offers from reputed lending institutions. Good home loan offers can save you a lot of money over the long run.
– What kind of tax benefits will I get?
Mostly none. You might wish to buy a second home and rent it out so that you can repay the EMIs on it via rental income. However, prevalent Income Tax rules stipulate that you can get tax benefits on only one owned property. This means that only one of your two houses is considered as ‘self-occupied’ while the rest are considered as earning rental income (even if you have not rented it out). The rent is taxable, so effectively, your second home will not yield much tax benefit even if you take a loan to buy it.
– Will it give a good ROI?
This is the most important question to ask before you make the purchase. You will need to assess the purpose of buying the second home. It can be a good investment if it is certain to appreciate in price, if the locality is bound to get good infrastructure, or be included in municipal city limits, or what the age of the building and its legal status are.
Keeping the above factors in mind will help you make the right decision when buying a second home.