Samir’s New Investment Option
Samir is a 40-year old businessman leading a reasonably well planned life. He is doing well in his business and earning well. He has achieved the goals he considers important like a good marriage, bringing up a nice kid, owning a spacious apartment, having sound investments and owning two mid-size cars. He takes three vacations each year. He is expecting a good income this year and for some years into the future too, and wants to look at other options to invest his hard earned money.
From among the alternatives he looked at, he feels he should invest in a second home so as to provide for his child’s future. He goes about researching the pros and cons of owning a second home.
Advantages of Owning a Second Home
Samir’s research (https://www.ibef.org/industry/real-estate-india.aspx) indicates that the real estate market in India is growing at a fair clip – 11.2 percent CAGR. He feels that traditionally, Indians never lose money by owning homes.
His research indicated
- The government giving a big push to the housing sector
- Great tax benefits on owning homes including multiple homes
- NBFCs such as Tata Capital offer home loans at attractive interest rates
- He can take home loan for multiple properties
What to consider while buying a second home
During his research, Samir found out that he should examine all angles of buying a second home carefully before he committed himself to go for the second home. More specifically he found that
- It is advantageous to take a home loan for buying the second home as the tax benefits are substantial
- Even though he can afford to buy the second home from his own funds he finds that a loan is more advantageous and he can deploy his own funds in his other investments which can earn him more than the interest he would pay for the loan
- He should buy a home in a locality which is well known for its convenient location to nearby shopping areas, schools, transportation, reputation and availability of basic infrastructure
- Since he is planning to let out the home, he should choose a location which can fetch him good rent
- He should buy from reputed builders and check their offerings for the latest in construction technologies, amenities provided, approvals received, sanctioned plans, property documents and title deeds
- He should do due diligence on the builder’s reputation for delivering on time
- He should thoroughly examine all associated costs to arrive at the total cost – cost of home, amenities, registration costs, car parking, deposits, statutory levies and any other cost
- It is advantageous to buy a completed house as the tax benefits apply from the date of purchase whereas for a under construction house, there are limitations
- Since the IT Act attaches a notional rental income for the second home if it is not rented, it is advantageous to rent the second home
- There is a 30 percent standard deduction available for rental income
- Long term capital gains benefit on the second home is also available
- Tax benefits on principal repayment up to Rs 1.5 lakh (Rs 2 lakh for senior citizens) is available only for one house and not for the second house under Section 80C
- Tax benefits on interest payment for the second home loan is available under Section 24(b) – limited to Rs 2 lakh or actual interest paid, whichever is lower
- It is advisable to take a home loan insurance so as to cover the repayment if any unfortunate incident happens to him without troubling his family
After considering the pros and cons Samir decides that he should go for the second home ready built and let out to take advantage of all the benefits available under the IT Act.
Tata Capital is an NBFC extending various loans including home loans to help borrowers take advantage of tax benefits. With Tata Capital, obtaining a home loan is very simple and effortless. You can even refer to our home loan guide. The home loan guide helps you to understand the home loan process and make considered decisions regarding the home you want to buy with our home loan product.