A second home is a good investment avenue, especially as the second home segment, all over the country, has appreciated astronomically in recent times. Real estate has long been considered a great long-term investment, and a second home is a great way to get into the action.
Motive for invest in a Second PropertyDifferent people invest in a second property with different motives. For some, second home is to have a relaxing place away from the hustle and bustle of city life. Some people invest in a second home in order to earn rental income. There are many who’d like to have a second home to spend the rest of their lives in, post-retirement. They also need a good hospital or polyclinic in the vicinity.
According to a 2010 survey by the National Association of Realtors, about 25 percent of second-home owners rent out their properties. The rest use them for vacations and weekends an average of 50 days per year and otherwise, the properties sit vacant. Some 26 percent intend to use their property as a retirement home eventually
Tax benefits on Home Loan
Investing in a house is considered as one of the best tax-planning tools due to various tax-benefits and concessions provided under the Income Tax Act. Tax benefits on interest component of the home loans u/s 24(b) is allowed not only for original home loan but also for second /subsequent / new home loan taken to refinance the first loan. So what it means is that when you subsequently start repaying your second housing loan, you will be entitled for tax benefit only on the interest portion u/s 24(b) and not on the repayment of principal component u/s 80C.
There are other tax advantages while investing in a second home. If the second home is let-out for a minimum period of 300 days in a calendar year, it is exempt from wealth tax. Moreover, tax liability arises only when the rent is actually received. If the second home remains vacant or rent becomes unrealizable due to non-payment by the tenant, there would be no income tax liability. This is because tax is payable only in respect of rent received.
Those who have invested in a second home can avail of Reverse Mortgage Scheme during their retirement period. It has also been clarified that the amount received from a financial institution against a reverse mortgage scheme is only a loan and senior citizens need not worry about the tax liability arising out of the loan amount.
Loan for a Second Home
You can get a home loan for a second house. But your second house cannot be treated as self occupied because you already own a home in which you are staying. The tax department views this second house to be ‘let out’. As a result, you will not enjoy the benefit of principal deduction. However, you can still claim the tax benefit on the interest paid. You will be entitled for tax benefit only on the interest portion u/s 24(b).
NRI not eligible for Home Loan interest sops
Even NRIs can raise short-term funds by investing in a second home. In case the second home is let-out to any corporate or public sector undertaking, one can raise funds as loan against rent receivable. NRI investors in second homes will have the benefit of repatriation facility as the rules prescribe that original investments made in foreign exchange up to two residential properties can be repatriated after a lock-in-period of three years.
Banks provide one per cent interest subsidy for home loans of up to Rs 10 lakh. However, Housing loans extended to NRI for construction of farm houses, and to staff members of the banks are not eligible for subsidy under the scheme. As per RBI, Non-Resident Indian would not be eligible for incentives on interest on home loans.
Second Home good investment option
Real estate has proven to be a good investment over the long-term. Generally, people invest in a second home in order to earn rental income or as a long term investment option. There is demand for second homes in naturally ambient locations as well as in self-sufficient projects that offer entertainment and ease of living.
When purchasing a second property, be prepared mentally and financially for everything that goes with it. However, if you have money to invest and time, buying a second property could actually turn out to be one of the smartest long-term purchases you will ever make.
Those who have invested in second homes can raise top-up loans from the same housing finance institution where they took a loan earlier for varied purposes like higher education, medical, marriage of their children and travel abroad. The documentation is simple and one can get the loan in a matter of hours.
If you purchase a second home as part of a plan to live there when you retire, you can begin building family memories and attachment to that home. There is also need of good hospital or polyclinic in the vicinity. For baby boomers who are considering downsizing, relocating, or a split-living arrangement in retirement, purchasing a second home before you retire can make sense.