Santhosh Kumar, Group Vice Chairman ANAROCK
The pandemic made us realize the importance of investing in real estate. While stocks, gold, and other forms of investments continue to have their significance, we have understood in the last 2.5 years how crucial it is to have your own home.
Owning a home, especially in a metro city, is a matter of pride and in today’s times, it’s a huge investment; but what it gives us is the security of a lifetime.
Now imagine someone telling you to invest in a second home. Your first reaction might be, What??? Here I am, not able to manage one, and you are talking about another one? No Way!
It may be normal to have such a reaction. But to be honest, everyone at some time in their life has dreamt of a second home, whether it’s on the beach, or tucked far away in the mountains of a small quiet town.
Usually, when there is a discussion about a second home, it’s considered for vacations or weekend getaways. Well, in a way it’s true but there are so many other advantages that one has not thought about.
1. Securing yourself financially and Increasing Income Streams
This could be the biggest benefit, as it affords you an asset that can help increase your cash flow while still providing the baseline scope of appreciation for long-term capital gains.
A decade ago, who would have thought Airbnb would be so big? With a second home, you have this option – rent it out and immediately start another free cash flow income stream. You can go for a short-term rental agreement or a long-term lease option which provides the flexibility of usage as required by everyone.
2. Your real estate investment portfolio is growing while providing leisure.
Growing and diversifying your Real Estate portfolio from the primary home is essential in my view.
It helps mitigate risk and you get a fixed monthly income which can help gradually get rid of other debts. It’s also an effective way to create wealth and expose oneself to the opportunities in this industry while maintaining an upkeep asset for retirement.
Imagine this second home which has been providing stable income and respite for decades, in a quiet Tier 2 city with a quaint neighborhood, ready and waiting for your later years. What more could you ask for?
3. Safe investment
As always, real estate investments are flag-bearers of monetary safety and security. As we have seen through the ages, the fact that this tangible asset has intrinsic value cannot be understated or shaken.
So, one can rest assured that a good second home will provide great capital appreciation value that can be leveraged in the future as per requirement.
4. Tax Benefits…of course
If you have taken a home loan to buy your second property, there are some tax benefits that you can avail yourself. Section 80C provides tax savings on the principal amount, while Section 24B offers tax deductions on the home loan interest rates disbursed to service the loan.
You can also claim a tax deduction of Rs. 1.5 lakhs on house loan principal repayments under Section 80C and a deduction of Rs. 2 lakhs under Section 24B of the Income Tax Act.
5. Have a relaxed weekend.
With a second home, you don’t need to plan or make bookings at higher rates. You now have the freedom to travel whenever you want, and you can spend more time with your family and friends, decorate it the way you want, have the option of doing organic farming, and enjoy the freshness of lovely weather and food.
A word of caution
While all this is great, there are some barriers that need to be considered – not to scare you, but just to alert you – renting or selling this house might be a challenge… and there is also the constant upkeep and maintenance required.
But, if you have vetted the property properly and invested in a location with the right kind of market outlook for your needs, then this purchase can surely be the best in terms of improving quality of life on multiple fronts.
So, plan well and take the leap.
As we saw above, there are tremendous benefits to owning a second home; however, it is imperative for you to evaluate your equity and debt ratios. This is a big investment, and it is important to plan as per your situation before you decide to invest.