Top Advantages and Disadvantages of Buying a Second Home

The pros and cons of buying a second home

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.

Pros of Buying a Second Home

• Extra income: The most obvious benefit 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 is considered 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 Indian real estate investment, buying a second home will be the better choice. Market trends show that investing in Indian real estate would help you 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 choose 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.

• Vacation Getaway: Owning a second house turns vacations become easy retreats. No more hunting for reservations or negotiating high season costs. Instead, you'll find a familiar and welcoming environment waiting for you anytime you feel the want to go. Imagine spontaneous getaways for weekends or extended stays to enjoy the conveniences and seclusion of your own place, all on your own terms. This benefit alone can considerably improve your free time and create the ideal setting for relaxation and refreshment.

• Family Gatherings & Creating Memories: Beyond a getaway, a second house can become a treasured retreat for reconnecting with loved ones. Picture exuberant family reunions, heartwarming holiday celebrations, and many moments of delight that will go down in family history. This unique location transcends its physical form, becoming a foundation for cherished memories that will be passed down through generations.

• Second Home as a Hobby Space: A second home can be transformed into your ideal studio space. Writers can find tranquility and concentrate in nature or with beautiful views of the water. Artists can spread out with plenty of room for canvases, easels, and a designated storage place for messy creations. Musicians can establish a soundproof space to practice instruments and record without disturbing neighbors in their own residences. This dedicated place promotes total creative freedom, allowing your interests to thrive.

Cons of Buying a Second Home

• 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 the 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 Indian 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 the Home Loan. As the interest reduces over some time, the tax benefits that you are 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 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 don't treat the property properly and could damage it. It will cost you a major amount to repair it and purchasing landlord insurance can help remediate this risk.

• Significant Upfront Cost: Owning a second house requires a large upfront financial expense, which should not be underestimated. The first obstacle consists of the down payment, closing costs, and the often-overlooked cost of furnishing the home to make it comfortable and practical. These combined fees can constitute a significant financial burden, so careful budgeting and financial planning are essential before committing to second-home ownership.

• Market Fluctuations: Unlike the stock market, which allows you to readily purchase and sell shares, real estate is less flexible. The property market is prone to unforeseen changes. This means that your second home's value may fall over time. Before investing, carefully evaluate market trends and probable economic reasons to prevent purchasing a property that is worth less than you paid for it.

• Potential Lifestyle Disruption: While the allure of a vacation getaway is undeniable, owning a second home can sometimes create an unintended consequence: lifestyle disruption. The responsibility of managing a property far away can eat into your free time and energy. From maintenance headaches to coordinating rentals, the burden can pull your focus away from enjoying your primary residence and disrupt the routine you've established there.

Here are some advantages of buying a second home:

• Rental income: You can earn money by renting out your second home.

• Tax deductions: You can deduct mortgage interest and property taxes from your gross income if you rent out your second home for two weeks or less per year.
• Property appreciation: You may be able to make a profit when you sell the property in the future.
• Vacation home: You can use your second home as a vacation home.
• Investment: A second home can be a good investment option for future milestones like retirement.

Here are some disadvantages of buying a second home:

• Finding renters: It can be difficult to find renters.
• Selling your home: You may struggle to sell your home.
• Affordability: You may have trouble affording a second home.
• Maintenance costs: You'll have two sets of routine maintenance costs to pay for.
• Capital gains tax: You may have to pay capital gains tax on a gift, such as a second property.

Reference Link:

1. Real Estate Investment Trusts (REITs)

2. Buying an Old or New House

3. Checklist before buying property in India

So, folks, that's most of the pros and cons of buying a second home!