Investments in equity and gold markets have worked remarkably well for Saugata Mitra.
In the last 3-4 years he could get lucrative returns on his investments.
A restaurateur by profession, Saugata always looks for promising investment opportunities.
Saugata has been considering investing in properties for quite some time. Although he owns a swanky apartment where he lives with his family, he has been considering buying a second home as a weekend getaway or for some rental income.
The problem is that buying a second home has several pros and cons.
But this problem had an easy solution for Saugata.
He bought his first home from NK Realtors and has an excellent rapport with them. He just called to discuss the pros and cons of buying a second home.
Over a couple of cups of coffee, Saugata learned the perks and pitfalls of owning a second home.
In the next few minutes, we will share what we learned from Saugata’s discussion with the marketing consultant at NK Realtors.
You will come to the financial implications, investment rationale, tax incidence, rental income potential, and other factors.
Keep reading.
Rationale for Buying a Second Home
The second home market is witnessing an unprecedented boom in India.
The second home market was worth $1.394 billion in 2021. It is expected to reach $4 billion in the next 2 years.
This massive surge in demand is due to various factors, such as post-pandemic lifestyle shifts and evolving preferences. Here are some key reasons for rapid growth in the second home segment:
Lifestyle changes
People’s lifestyles have changed dramatically in the last 3-4 years, especially after the pandemic. For many, a second home is a peaceful escape. They are also looking for a break from city life, a return to nature, and relaxation.
Remote work
The workplace dynamics have changed toward remote/hybrid work culture. People are choosing more serene pastoral locations to stay in rather than noisy, polluted city life. This is a crucial reason why people invest in holiday properties.
Millennial homebuyers
Millennials are among the top second-home buyers. They are interested in flexible living and freedom of choice. They want to enjoy a high-quality life without shifting permanently.
Fractional homeownership
Fractional homebuying is becoming increasingly popular, especially among the young. It makes it easier to co-own high-value properties.
Rental income
Second homes offer the opportunity to earn passive rental income. A majority of Indians invest in real estate because of this reason. You can even earn vacation rental if you are not using the home year-round.
Retirement homes
The search for serene retirement destinations has made second homes increasingly popular among retirees.
Tax savings
Under Sections 80C and 24 of the Income Tax Act, a second income can benefit from tax savings. Deductions can be claimed on the home loan’s principal and interest components.
Should You Invest in a Second Home?
Investing in a second home can offer lucrative benefits.
Property investment returns are very stable over the long period and additionally offer potential rental income. Rental income is often substantial depending on the type of properties and other factors.
However, rental income can be somewhat modest in the beginning but it can get better with time.
Let’s discuss why investing in a second home is a good idea.
Financial consideration is the most important factor before buying a second home. You can expect considerable capital appreciation as well as rental income. It is always a good idea to diversify your investment portfolio and not concentrate on only one type of asset class.
Psychological reasons are also very important to many buyers of second homes. People love to own weekend getaways and the social status they offer. Unwinding after busy working weeks in a serene atmosphere is very attractive.
A second home can be a great shelter after retirement. If you are planning for your retirement, you can buy a second home in idyllic surroundings.
A Few Words of Caution
Although investing in a second home can be very lucrative, you should avoid a few pitfalls before you take the plunge.
A second home needs to be managed as diligently as your first home. As you are not staying there regularly, it can sometimes be challenging, especially if it is far from your primary residence.
Continuous occupancy is not guaranteed if you plan to rent out the property. Off-peak seasons or unexpected economic downturns can lead to vacancies, affecting potential rental income.
Depending on your lifestyle and commitments, you may not be able to use the second home as frequently as desired. This can make the investment less rewarding, especially if it remains vacant for extended periods. If you buy your second home in a tourist spot, serving tourists can offer some challenges. Moreover, tourism revenue is usually seasonal.
Owning a vacation home promises an escape to idyllic getaways, a sanctuary to create cherished memories, and the potential for financial gain through rental income & property appreciation. However, it also demands carefully evaluating the associated responsibilities, financial commitments, and potential risks.
