With today’s low price points, where a number of micromarkets have seen correction, homeowners can consider buying a second home.
However, buying a second home comes with unique financial conditions and challenges. Therefore, if you are seriously considering investing in a second home, there are a few things that you should look at.
The tax implication: After Union Budget 2017, the government capped the amount of set-off of loss from house property to a maximum of Rs 2 lakh per annum. This would mean that taxpayers will now be able to set off a maximum Rs 2 lakh against their other income. Although the unadjusted loss from the house property can be carried forward for 8 assessment years to be set off only against income from house property.
“This simply means that it may not be that lucrative to buy a second property in the current scenario when rental income is also not very high. Here both the interest as well as the rental income will be taxable,” says financial planner and chartered accountant, Nikhil Agarwal. You will need to look at other factors, too, while buying a second home.
Think about your purpose of investing and consider the rental yield aspect: In case you are buying for a rental income, you may want to look at the area where you are investing.
Buy in an area where the chances of price appreciation are higher. But this would also means that you need to check on the rental yields of the properties in the location. An area with good surrounding infrastructure at a good location may be priced higher.
“On the basis of rental demand, one can look at investing. If there is good rental demand, there are high chances that you will earn despite your rental income being taxed,” says Sanjay Khanna, a property consultant of South Delhi.
Do your own due diligence: it is often seen that buying in a city area fetches more rental income. However, check if there will be any more appreciation on the property price.
“You may want to invest in a property that is priced low, yet in demand and offering good appreciation potential,” Khanna Sanjay says.
“This appreciation can also be a hedge against inflation and other pressures that you may face financially in the future,” Nikhil Agarwal, a financial planner, says.
Buying through a mortgage can be a good idea if you don’t have any other loans on your head. However, take a plunge only when you have some cash with you for other activities like paying for the down payment, maintenance of the property, and other related costs. This down payment should not come from the savings that you may have for your retirement or any other exigencies.