Congratulations! You have come a long way! Not everyone can buy a second home. It demands good financial planning and courage to take a bold step with your hard-earned money. Investing in real estate generates passive income, which is useful when the global economy is struggling, inflation is on the rise, and consumer pockets are being squeezed. Therefore, buying a second home is a good option when you are looking to fulfill your long-term goals. Although capital appreciation in real estate is quite slower, however, it may yield a high good return when invested with expert guidance. So, here we are listing various factors that you should consider before buying your second home.
Assess your financial stability
The decision to buy a second home completely depends on your financial stability. You must consider your expenses and income sources to determine the budget you can plan to invest in for your second home to ensure that no future financial aspects are jeopardized. A set budget helps you plan your financial and investment goals better. Therefore, it is a good idea to prepare a list of all the potential costs you may incur in the future. In addition, you should also consider charges for home loan insurance, which safeguards your property in your absence. Hence, you should consider all expenses and prioritise the property in your budget.
Read: Top 5 Reasons Why You Should Purchase A Home Loan Insurance
Estimate your long-term goals
Understanding your long-term goal of buying a second home plays a vital role. Therefore, you must have realistic expectations about your goal in purchasing a property. Whether your goal is to self-occupy, increase the value of your portfolio, or get a good rental return, it is paramount to determine your objective of buying a second home. In case you are looking for an investment that yields a high return on investment, it is essential to find out whether it is a vacation home, a commercial property for a staycation, or just a residential property for renting. It is observed that vacation and staycation homes yield a high return on investment. Hence, you can plan for the properties like a villa that are built in the resort or a spacious independent house in proximity to nature which may attract people for its picturesque. Do not forget to look at the basic facilities in the vicinity, which include medical institutions and shopping malls.
Research on location and return on investment
Whenever, you plan to invest in a second home, always look for suburban areas. Yes, you read that right! Suburban areas are highly considered due to the wide scope of developments, upcoming infrastructure projects, and companies being set up to generate ample employment opportunities. These areas are not only affordable, but they have the potential to yield a 2x return on investment and sometimes even more. Investing in suburban areas is always a wise choice as you get numerous projects to evaluate and a chance to shortlist the one that best suits your requirements.
Fund your second home
Now, that you have planned and decided on the kind of property you wish to invest in, this is the time to finance your property. It is a crucial part of buying a home. If you own a plot, get your contractors and labourers onboard. Do not forget to negotiate before signing a contract with them. In the case of a "ready-to-move-in," you should either pay it from your savings or apply for a home loan. The bank will check your portfolio and process your documents for consideration. However, you should be aware that there are numerous important things to consider before applying for a home loan in order to avoid having your application rejected.
Read: Top 3 Things to Consider Before Applying for a Home Loan to Avoid Rejection
Tax Benefits
When purchasing a second home, you can claim tax benefits on both the principal and the interest paid on the home loan. According to the Income Tax Act of 1986, you can claim tax benefits of up to 1.5 lakhs under Section 80C and up to 2 lakhs under Section 24B. Therefore, buying a second home can be a good idea if you are eligible to claim tax benefits. The value of your second home will gradually improve, turning it into a profitable asset that continues to appreciate and yield a high return on investment.
With the cost of property rising, investing in a second home is a dream for many, and if you are on the road to executing it, it is a milestone! Therefore, a little planning before you embark on this path will alleviate all your stress and worry about loan repayments in the long run. So, every time you check the appreciation on the property, it is climbing, which will drive you to keep going!
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