Buying a second home is twice as special. First, because you are investing the second time around, proving that your first investment was a good decision. Second, because you will now be the proud owner of two properties, with a steady income and long-term financial security. However, even though you have gone through the home buying process once, you will need all the guidance to make the right decision. Is buying a second home a good investment? Will you get enough ROI? Here are a few factors you need to consider before diving into the real estate market and buying a second home.
1. The budget
Before you invest in your second home, you need to assess your financial stability and decide if you have the financial means to make the purchase. Just like your first home, you will incur acquisition costs like the mortgage payments, taxes, maintenance and insurance expenses. It is a good idea to set a budget and shortlist homes that are well within your budget.
You will also need to factor in the risk of natural calamities such as fires and tsunamis which can increase the insurance costs for the home. Typically, insurance for rental homes is much higher than homeowner’s insurance. Hence, before you buy a second home, make a list of all the potential costs you may incur and budget for them accordingly.
2. The location
Location is one of the most crucial factors when it comes to real estate investment. If you are buying your second home as a source of income, a great location with access to numerous facilities and avenues for entertainment can increase the demand for your home. The property location can also help you evaluate the property’s appreciation potential.
You may also buy your second home as a vacation or retirement home and in this case, a villa or a row house in a peaceful, quiet area would be optimal. But, the home still needs to be accessible to hospitals and convenience stores. You have an endless number of choices when it comes to buying your second home so, make sure the location of the property ties into your use and need for the home.
3. The return on investment
When buying a second home, one of the most important factors you need to consider is the potential return on investment from the home. There are many factors that come into play such as the location of the home, the demand for rental properties in the area and social infrastructure like the road and rail connectivity to neighbouring cities. Traditionally, homes in commercial spaces provide a higher ROI than homes in secluded areas. Investing in a home with a high return on investment will consequently provide higher long-term returns. Keeping this in mind, it is a good idea to invest in fast-appreciating localities where the investment is not as high as the well-established neighbourhoods. Additionally, there is more scope for appreciation over the years.
4. Evaluate your long-term goals
Your lifestyle and long-term goals play a huge role in buying your second home. You need to be realistic about your goals in acquiring a second home. The property can be a vacation home or an investment to increase the value of your portfolio. This factor not only impacts the type of home you buy but also its location and use. A home that is purchased as an investment, needs to be located in a residential area so it can generate high revenue in the form of rent. However, if it is a vacation or retirement home, you need to check the property’s access to entertainment and health facilities.
5. Funding your second home
Financing your home is one of the most crucial factors when it comes to buying your second home. You could either pay from your savings or choose to apply for a home loan. Choosing a home loan is a wise option as you can also avail tax benefits on it. According to the Income-tax Act, you can enjoy tax benefits on the interest component of your second home which is capped at Rs. 2,00,000 for a self-occupied or rented property. Additionally, you are also exempt from wealth tax if your home is a let out one.
Buying a second home is an incredibly exciting and huge milestone in your life. Whether the home is a vacation property or an investment, the demand for real estate properties is on the rise. Many individuals find real estate to be a safer investment than stocks and bonds as it provides a greater long-term return. Although buying a second home comes with its own costs and maintenance requirements, the pleasures from owning a second home are far more significant. Looking for a second home that will suit you? Head out to Assetz Property today and find your dream home!