Buying your own home is a dream shared by many people. However, there are only a few lucky ones who are privileged enough to buy a second home!
Buying a second home is an all the go financial decision since real estate is one of the best investment options out there. We will help you to make an informed decision by pointing out the pros and cons of buying a second home.
Extra income: The most obvious benefits of buying a second home is earning extra money by renting it out to tenants. You can use the rent money to pay the monthly EMIs of a Home Loan. In this way, you don't have to worry about saving a part of your salary to pay the EMIs. Also, if your second home is in an area that attracts renters, you may be able to use your house to generate extra income as you won't be spending all of your time there.
Better Investment: Buying second homes are considered as a good real estate investment option for future events like retirement, children's education, children's marriage etc. Since rising inflation is contradicting with appreciation in the property's net evaluation, it is considered to be a safe investment for future events and emergencies. It can also be a good investment if you buy a property in a neighbourhood with rising home values. Putting your money in fixed deposits, bonds, mutual funds, or gold could be a great idea. But, if you are planning a bigger real estate investment, buying a second home will be the better choice. Market trends show by investing in real estate would help you to earn better returns than any other asset class.
Location for Gatherings: It can be the best location for your family gatherings. The annual visit can become a tradition that will keep your ever-growing family close as you spread across the region and country.
Working far from home: It is one of the most common reasons to buy a second home if you work far from home and you want to avoid living in a hotel during weekdays. If your home and your work are far apart, then it might be impossible to come and go each day. This may also be possible that during the workweek, you need to live where you work. Living in a hotel might seem like a good option to start with, but at last, you need a home only, and you might want to start looking for a second home in the city. It can be a place that you can truly call your home during the workweek. In this situation, you can either chose to rent a house, or you can buy a house. Buying a home can be a good option if you are going to work in the city for a very long time.
Easy Switch: If you have properties in two different cities, you can think of shifting from one city to another any time you want because sometimes all you need a change of place.
Difficult to sell or rent out: If your budget gets tight, you can always sell your second home or rent it out. But if you have a tough financial stretch, there is a good chance this will occur during a recession, when many other second-home owners also attempt to sell or rent out their second home. Hence, the property market typically becomes flooded at times, and it becomes difficult to sell or rent out the property.
Your successor might not be interested in inheriting your second home: You might consider your second home you buy to be a legacy you will leave for your family. But your heirs will not be interested in that property. They might get more interested in stocks and bonds investment rather than investment in any vacation home. If they inherit real estate, they will be required to pay the property's expenses to keep it in the family. Also, in the case when there are multiple heirs, inheriting a vacation property can lead to arguments about its shared use and costs.
Benefits from tax savings reduce over time: In case, you bought your second house on EMI. So, during the initial EMI payments of a Home Loan, there is a considerable amount of interest to be paid. But, in the later stages of loan repayment, the interest amount declines, and this affects the tax deduction for interest paid towards Home Loan. As the interest reduces over a period of time, tax benefits that you were getting will also reduce.
Difficult to maintain: Maintaining your second home will be a difficult task if purchased far away from the city you live in. Also, if you do not have a proper security system there, independent houses can be more dangerous than apartments. In some cases, you may spend your entire visit working on the property, which is surely not what you expected when you dreamed of ownership.
Work and risks in managing rentals: There will be the work required to manage the property and deal with tenants' requests. You might hire someone as a property manager if required, but it can cut into the money you will make from the property. Also, in many cases, you have to deal with the risk if the tenants may not treat the property properly and could damage that will cost you a major amount to repair it and purchasing landlord insurance can help remediate this risk.
So, folks, that's most of the pros and cons of buying a second home!
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