Factors to Consider Before You Buy Second Home as an Investment

Factors to Consider Before You Buy Second Home as an Investment

Buying a second home is a luxury which only a small population can enjoy. It is not easy to afford a second home in this competitive world where the cost of things keeps going up. If you are one of the few lucky ones to who are considering to buy your second home, then you have come to the correct place. We will be talking about various factors that one should consider before opting for a second home.

Objective:

You need to be 100% sure about why you are buying the second home. A lot of people tend to buy a second home without a clearly defined objective in place and this can lead to chaos on the long run. Here are some of the reasons why you might buy a new home.

  • Whether for investment?
  • Own Occupation?
  • Retirement home?
  • Vacation Rest house?

Analyze the above options and try to find the right objective. Don’t start searching for a 2nd home before finalizing why you need it.

Buy Second Home

 

Is it Feasible?

Can you afford the cost of the second home? Is you first home under a loan already? If that being the case, is it worth taking another loan? You need to audit your finances before taking this decision. Many people get excited and buy their second home and end up in a bad financial position. You should also look at how your income potential for the next 5-10 years and match it with the new home property value and EMI. You should also consider and plan for any contingencies that might arise during the second home loan term.

Loan Implications

If you plan to take loan again for the 2nd home, the loan amount percentage will be low. If your bank has financed 90% of your first home, the 2nd home finance eligibility will be around 75% only. You need to pay a much higher upfront amount. Be ready for it. If you have a great track record with the home loan company for your first loan then that might help you in getting a higher percentage of the loan amount for the second time.

Tax Implications

You will come under the wealth tax purview. If this property is for rental purpose, then remember, rental income is taxable under the income tax. So be careful with your taxes and consult your auditor before buying the second home. Even if you are buying your second home for the non-rental purpose, income tax laws state that a second home should be considered rental and tax be collected based on market value of rental in that area.

Capital Appreciation

If your objective of the 2nd home is purely an investment, then we need to have two kinds of appreciation.

  • Rental value
  • Capital Appreciation

Look for a location where the rental value will be higher. Also, the scope for capital appreciation should be high. Most people believe that rental income will take care of home loan EMIs. This is completely false. In a country like India, rental income is just 4% whereas the loan interest will be around 10%.

These are some of the most important factors that you should consider carefully before buying your second home. Once you have finalized, you can look affordable homes in Directowners.

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