With Budget round the corner, Second property is a good investment

Investors in second homes will benefit both in terms of capital appreciation and fiscal sops. Generally, people invest in a second home in order to earn rental income. Besides this, the benefits that would accrue over a period of time clearly illustrate the inherent advantages of investing in a second home.

While investing in a second home, an investor opts for a home loan or sells other assets and reinvests the sale proceeds in the new home. The maximum amount of interest on the loan that is allowed as a deduction is Rs 1.50 lakhs, which would mean a tax saving of nearly Rs 45,000 per individual. This is apart from the permissible deduction up to Rs 1 lakh within the overall limit of other deduction under Section 80C of the Income Tax Act.

When you reinvest your sale proceeds while buying a second home, there is no liability to pay tax on the capital gains. The concept of cost inflation index that will increase the cost price of the building taking into account the inflation index is also available. Additionally, any amount spent on improving the home is also deducted from the gross amount of capital gains.

The long-term capital gains for investors in a second home are exempt if they have been invested in the purchase of another house within one year or before two years after transfer, or in the construction of a residential building within three years of transfer and here is no sale of such a house for three years. You should use the capital gains by the date of filing of income tax returns or deposit the used amount by the last date of voluntary filing of income tax returns in a special account in a nationalised bank.

There are other tax advantages while investing in a second home. If the second home is let-out for a minimum period of 300 days in a calendar year, it is exempt from wealth tax. Moreover, tax liability arises only when the rent is actually received. If the second home remains vacant or rent becomes unrealisable due to non-payment by the tenant, there would be no income tax liability. This is because tax is payable only in respect of rent received.

The rules also prescribe that the amount realised from the tenant in respect of the unrealised rent of the previous year would be subjected to income tax in the year in which such rent is realised. This is applicable to all types of properties, be it residential, commercial or industrial property. There is no change in the provision for exemption from wealth tax for investments in commercial properties.

Also, those who have invested in a second home can avail of reverse mortgage scheme during their retirement period. They need not depend on anyone for regular income in case they own more than one residential property. It has also been clarified that the amount received from a financial institution against a reverse mortgage scheme is only a loan and senior citizens need not worry about the tax liability arising out of the loan amount.

Source: ET

Why you must take a joint home loan

Buying a home is a milestone goal in most people's lives and the earlier they achieve this goal, the more peaceful they feel. In current conditions building or buying a home without a loan is a difficult task especially if you are in your mid-twenties and early thirties.

True earlier generations waited for nearly a lifetime to save money for this goal, but this is not the case with the current generation, and with rising real estate prices this does not seem a sensible option as well. Nowadays, everyone wants to achieve goals early so that they can enjoy the fruits of their labour, when they are brimming with youth.

The younger you are when you take the loan the better it is, as you will be able to pay it off in the next 20-odd years, and will be able to own a home before you are well into your retirement.If taking a loan early is an advantage, taking a joint home loan is a double advantage. Why? Listed below are the reasons.

a. The most significant advantage of a joint home loan is the increase in your loan eligibility. Incomes of the individuals taking a joint home loan are combined to determine the eligibility and it results in a higher loan amount.

b. Tax rebates are yet another advantage - as each of the individuals taking a joint home loan is eligible for individual tax benefits under Section 80 C currently for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid for each individual.

c. The number of people who can avail a joint home loan can be anywhere between four and six, depending on their individual credit profiles.

d. There is however one condition when banks lend money to joint home loan applicants, which is, all co-owners of the property should also be co-applicants, but the reverse need not be true.

Joint home loans are very much possible, but they do have their restrictions in terms of whom you can pair with for availing the loan.

Source : Rediff Business

Second house is an asset!

Long-term investors can benefit from investments in property such as a residential or commercial building, or land. Property investors must bear in mind that property as an investment requires adequate time to buy and sell.

Ample amenities, increased choices, improved construction quality and competitive rates make a second house a lucrative asset class that can provide a predictable income stream along with capital appreciation. Rental income from the second property can help repay a substantial part of the monthly EMIs. If your salary has increased since you took your first home loan or have already repaid your home loan debt, procuring a second loan may not be difficult.

A second house is an ideal investment option for a person with larger disposable income and lesser debts. If you invest early in a second house, you can repay the debt sooner. This enables you to set aside a larger amount towards your retirement savings much earlier in your working years.

Otherwise, a large chunk of your earning is diverted towards repaying debts, leaving very little disposable income for savings, healthcare, contingencies and retirement planning.

Increasing urbanisation, job opportunities and population growth have stretched demand for housing beyond imagination.  A second house might appear to be a lucrative investment.  The buyer must remember that he must commit extra time towards his second house too.

Managing another property that is in the same locality may be ideal. A second home is an ideal investment in these times of lenient lending rates and increased competition among builders.

Source : ET