The Pros And Cons Of Buying A Second Home

By BankBazaar | March 30, 2017

The Pros And Cons Of Buying A Second Home

Buying your own house is a dream which many harbour. But thanks to Home Loans, realising that dream has become very simple thanks to affordable interest rates with easy Home Loan EMIs. However, there are a few lucky ones who are privileged enough to buy a second home.

Additional Reading: Factors To Consider Before Buying A Second Home

Buying a second home is a popular financial decision since real estate is one of the best investment options out there.  Apart from being considered as the best way for your money to grow by financial gurus, buying a second home gives you other benefits like increasing your asset value and adding an additional source of income through rent.

While the general perception behind buying a second home is that it is a great investment option, there are also a few downfalls that one needs to consider before buying a second home. We’ll help you make an informed decision by pointing out the pros and cons of buying a second home.

Additional Reading: Your Guide To Buying A Second Home

Pros of buying a second home:

1. Extra income through rent: One of the most obvious benefits of buying a second home is earning extra money by leasing or renting it out to tenants. In many cases, the rent money is used to pay the monthly EMIs of a Home Loan.

This way you don’t have to worry about saving a part of your salary in order to pay the EMIs. And as years pass by and the value of the property appreciates, the rent increases as well, which leads to the influx of extra money after paying the monthly Home Loan EMI.

 2. Tax Savings under Section 80 C and 24 B: Taking a Home Loan to buy a second home guarantees tax savings on the principal loan amount under Section 80 C. The interest paid towards the loan also leads to tax deduction under Section 24 B.

A person can avail a tax deduction of up to Rs 1.5 lakh on Home Loan prinicpal repayments under Section 80C and Rs. 2 lakh under Section 24. Yup, you read that right! So, buying a second home seems like an awesome idea, after all!

3. Investment for future milestones: Apart from providing tax benefits and extra income through rent, second homes are considered good investment options for future milestones like retirement, children’s education, children’s marriage etc. Since rising inflation is negated with appreciation in the property’s net evaluation, it is considered to be a safe investment for future events and emergencies.

Emergencies always come unannounced, and while Personal Loans can certainly come to your rescue during a financial crisis, the power of a house cannot be underplayed. Depending on the state of your finances, you could very well sell your second home and use the money to tackle your financial woes.

Additional Reading: Second Home Loan Advantages

Now that we’ve seen the perks of buying a second home, let’s take a look at the other side of the coin. Read on!

Cons of buying a second home:  

1. Difficult to liquidise in times of emergency: While we just mentioned how a second home can be a good investment option for future milestones and emergencies, it is often difficult to liquidise the house quickly thanks to the huge cost involved.

So, in case of emergencies, liquidising the property as soon as possible becomes tough and people tend to incur losses by selling the house in haste for a considerably lower price.

Selling a property by striking the right deal requires patience and it may even take months or years before you could actually liquidise the house. And of course, unless you have a lot of time on your hands, you can’t really wait that long to tackle an emergency, right?

2. Tax Saving benefits reduce over time: During the initial EMI payments of a Home Loan, there is a considerable amount of interest to be paid. But, in the later stages of loan repayment, the interest amount diminishes and this affects the tax deduction for interest paid towards Home Loan under Section 24 B.

As the interest reduces over a period of time, tax benefits that you were getting from Section 24 B also reduce. So, make hay while the sun shines. You could also liquidise the property later and invest elsewhere.

3. Personal savings take a hit: Creating an emergency back-up fund in case of illness or job loss is a wise financial move. Similarly, money experts emphasise on the importance of Insurance and retirement plans.

But, if you buy a second home by taking out a Home Loan, you will be paying substantial EMIs and will have little or no money for your personal savings. Thus, your emergency back-up fund and other important investments could take a hit.

4. Risks of not finding a tenant and maintenance cost: Apart from the drawbacks mentioned above, one needs to take into consideration the risks and issues related to a second home, such as:

5. Risk of low rental yield: Sometimes, the rental income will be much lower than your EMI. You have to take this into consideration before investing in any property. Unless the location of the property is known to have high rental yields, you will be taking a huge risk.

This is applicable only if you plan on relying on the rental income to pay your EMI. If you wish to buy the second house for your personal use, this factor shouldn’t bother you at all.

6. Risk of not finding a tenant for a long time: If you have already decided to buy a second house with the aim of renting it out, you need to do your research in order to find out whether getting a tenant in that locality is fairly easy or not.

Most builders will say that the property is on high demand, so make sure that you carry out your own research. If it’s going to be difficult to find a tenant for the property, you should consider exploring other locations.

7. Maintenance cost of the second home: You have to ascertain the maintenance costs of the property before investing in it. Based on the builder and how big the residential complex is, you can get a rough estimate of the maintenance costs involved.

If the rental income manages to cover your EMIs and the maintenance costs, you have a good deal in the bag. If not, you will have to either ask the tenant to take care of the monthly maintenance costs or look for another property.

Additional Reading: 7 Things To Consider Before Buying A Second Home

Now that you know all about the things to consider before buying a second home, analyse the pros and cons before taking a decision. In the meantime, if you want to find the best Home Loan deals in the market, check out our offers right away!

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2 thoughts on “The Pros And Cons Of Buying A Second Home

  1. AvatarAnvi Jha

    Thanks for sharing pros and cons of buying second home for senior citizens. But I found one more website Partham this website develop “paraisodecasa” project for senior citizens as a second home in Silvassa at affordable price with great amenities.

    Reply

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