Investing in a Second Property

Real estate industry offers you an opportunity for long-term investment. In the past, people often had to save for their lifetime to be able to buy or own a dream home.  But today, increase in income and tax benefit available has made buying or investing on a home affordable. Increasing demand for property, cut down in interest rate and easy registration process has attracted more property buyers to invest on their dream home. Even if you already have a home, investing in a second property is not bad idea.

Rental Income to meet portion of EMI

If you already have a home, this is not the end. You have still an opportunity to make income or invest on second home. Buying your dream vacation house or another property to rent out may be an option to consider. When you purchase a property during an uptrend, your investment could double in no time.

Banks and financial institutions can offer home loan for second home easily, even though you are still repaying the loan for first home. You can use the rental income that is obtained from the second property towards meeting a portion of the EMI repayments.  Real estate sector holds a lot of promise and higher price for your property in future sale. You need to choose home loan for second home only if you can repay EMI of both home loans.

Getting a home loan is easy

In the past, average age of property buyers are 40s and 50s but today average age is 30s. Banks and financial institutes have started price war to attract potential home buyers with low interest rate, longer tenure period and zero or marginal processing fee. Today getting a home loan is easy and process of documentation or loan sanction has made simple  for property buyers. Earlier loan rate was 17 per cent but today it has fall to 12 percent and further reduced to 8 percent. This has made dream home true for middle income group or low income people. The bank decides on your eligibility after considering factors like age, income level, educational qualification, repayment track record and credit history. If you are managing too many debts, repaying home loans may become a challenge. You need to contact as many lenders as possible and make good market research to get best deal for your home loan.

Easy registration process

Government has taken initiatives to make property registration hassle free process. The cut down in stamp duty,uniformity in documents required for property registration etc has made property registration easy. Guidelines are  issued to Registrar by government on documents required for property registration. This prevents harassing property buyers by demanding for different documents while registering the property.

Affordable Home

Affordable home enable you to invest on home or property where cost is easily affordable by you. Affordable housing is a buzz word floating around these days. Affordable home adopts techniques or methods to bring down cost of construction of home or apartment. Experts suggest that homes costing no more than five times the buyer’s annual income can be considered affordable. The low cost homes do not compromise in terms of quality of material or safety, but usually they are built on either a smaller space or where land costs are lower.

An amendment to the Income Tax Act, Section 80I(B), has been proposed, where profits from housing projects approved by a local authority between April 1, 2007 and March 31, 2008 will be tax-free if completed before March 31, 2012. Developers that were planning to launch may attempt their projects to fit this limit. Many top developers have already begun to get into the affordable segment.

Tax benefit on second home

Under Section 80 C, Principal repayments made towards the second home loan can be deducted from your taxable income. The entire interest repaid can be deducted from your taxable income. However, the rental income earned (actual or notional) is to be accounted as additional income. Further, 30 percent deduction from rental income is permissible towards maintenance charges. Municipal taxes paid can deducted from rental income.

If you are planning to use your second-home as a vacation retreat, make sure you consider your needs. Vacation towns typically need to be within a two to three-hour drive of a major city, or at least reasonably close to a big airport. There has to be lots of stuff to do beyond shopping, which is why most thriving resort towns are near ski lifts, beaches or mountains. If your second home is mostly for investment purposes, ask your real estate professional about property management options, which can be a crucial financial factor, as well as important to peace-of-mind. Location is also a factor for those buying a second home as investment property, especially if appreciation or rental value is your goal.

Buy a second house that meets your needs, available finances and lifestyle.