7 MinsDecember 04, 2019
Real estate is a preferred investment for most Indians. Most of us make it a top priority to buy a house as soon as we start working. And once the loan on the first home is paid off, we start planning to buy a second home.
One big attraction is the tax benefit that a home loan offers. If you already own a home for self-use, you could look at a second property as an investment. It can be let out on lease/rent to earn additional income. Either you can rent it out
for the long term by signing a lease and rental agreement, or you can even let it out for shorter periods on web-based services such as Airbnb. You can earn passive yet regular income if you sensibly deploy your money in real estate. You can
rent it out to individuals or corporates for using as a guest house.
Rental income can offer additional cashflow
Today, when individuals and families are willing to relocate for livelihood and better employment opportunities, plus travel regularly for holidaying; your second home can fetch
a good license fee or rent. Besides, over a longer period, you can expect decent capital appreciation.
The rentals will depend on multiple factors, the most important ones being the location, size, and condition of the house. The infrastructure in the area, such as rail and road connectivity, schools, supermarket, etc, also determines the rent
you can earn.
If you are listing your house on platforms such as Airbnb, ensure that the facilities you offer meet the requirements set by these platforms.
If your house is in a popular tourist destination, you can make good money by renting it out as a holiday home for a couple of months during the year.
Rental income can be a steady source of income during your post-retirement years. The only thing to keep in mind is to ensure that your home does not remain unoccupied for a long time. If so, the absence of the rental income could impact your
budget.
[Also Read: Tips to get the Right Home Loan Offers]
How taking a home loan helps
If you do not have the necessary financial resources upfront to buy your second home, consider availing a home loan.
A home loan, which is a secured loan, is one of the best ways to build up your assets if you handle the liability sensibly. You are effectively putting down some of your
own money (the down payment) and borrowing the rest from a bank (to be repaid in the form of Equated Monthly Instalments or EMIs).
If you are looking at saving on the interest cost while you aspire to purchase your second home––which could even be used as a weekend home or a vacation home––consider the ‘QuikPay Home Loan’ from Axis Bank.
Contrary to the industry norm, ‘QuikPay Home Loan’ offers an alternative repayment structure, where you repay an equal amount of the principal, that is, a fixed amount every month along with interest on the outstanding balance. Thus,
the equated fixed principal amount, combined with the reducing interest amount, leads to a reduction of monthly instalments over the tenure of your home loan.
Compared to a typical or a regular home loan, under ‘QuikPay Home Loan,’ you repay the loan faster and the total interest paid during the loan tenure is reduced.
To know how much you can save on opting for a QuikPay Home Loan, use our online QuickPay Home Loan Calculator.
Tax benefit
Availing a home loan for a second property also entitles you to a tax benefit under the Income Tax Act, 1961.
The principal portion of the home loan EMI is eligible for a deduction under Section 80C of the Income-tax Act, 1961, subject to a maximum limit of Rs 1.50 lakh per financial year.
Likewise, the interest portion of your home loan EMI is allowed as a deduction under Section 24(b) of the Income-tax Act, 1961. If you decide to self-occupy the second property or not lease it out, even then you are entitled to deduction up to
Rs 2.00 lakh per annum under Section 24(b) is Rs 2 lakh per annum. And in case if you decide to it let-out or rent-out your second home, that is, it is a Let-Out Property (LOP), the actual interest payable is eligible for deduction under Section
24(b), thereby not being subjected to any maximum limit. This way buying a second home is also sensible from a tax planning point of view.
A second home is an investment that can provide a sense of financial security, reward you well plus assist you in tax planning. But be objective in your approach. Assess your home loan eligibility using Axis Bank’s Home Loan Eligibility Calculator; borrow in such a way that repayments do not become a burden, and evaluate your options sensibly even as festive offers serve
to be deal sweeteners.
Finally, when you make a choice, read the terms and conditions of your agreements (home loan and purchase deed) carefully; understand everything before signing on the dotted lines. If you need professional guidance, speak to your lawyer, Chartered
Accountant (CA), and property consultant for suitable and valuable insights.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
