Discover how investing in a second home can go beyond lifestyle—becoming a timely and strategic financial move

Authored by  Sandeep Ahuja, Global CEO of Atmosphere Living

For decades, purchasing a second home was the ultimate indulgence—a hilltop retreat for the weekend, a beach house, or a city high-rise to get away from it all. But now, the attraction of a second home is much more than an indulgence. It's an intelligent financial decision that can create income, wealth, and a permanent asset.

A Shift in Perspective

The concept of a second home has changed drastically over the past few years. During the pandemic, when virtual work replaced office hours, many reconsidered where they wished to reside. City residents yearned for wide-open spaces, families wanted quieter, roomier homes, and professionals discovered they could do their job from anywhere.

Consequently, places such as Alibaug, Lonavala, and Goa saw a boom in demand for second homes. The market for second homes in these locations increased by almost 50% over the last three years, according to property reports. What used to be termed as a luxury buy is now regarded as an intelligent investment.

Why a Second Home Makes Financial Sense

Purchasing a second home is not merely acquiring a holiday home. It's also a smart financial investment that can return several times over.

1. Rental Income:

Picture having a quaint hillside cabin or a sleek beachfront home. You can rent it out on Airbnb or short-term rental websites when you're not there. With the popularity of work-at-home life, more individuals are seeking longer-term stays in quiet, natural settings.

In highly sought-after locations, a prime-positioned second home can command high rental yields. These rents can pay maintenance, repay mortgage installments, or even generate a regular cash stream.

2. Property Appreciation:

Property is one of the few assets that tend to appreciate over time. If location selection is smart, a second home can value significantly higher.

Consider Goa, for example. With its thriving tourist sector, real estate in prime locations has registered annual appreciation of as much as 15-20%. In the same vein, areas such as Alibaug are gaining from infrastructure developments like coastal road and sea link, and hence are becoming hot investment destinations.

3. Portfolio Diversification

Investing in a second property increases a physical asset to your portfolio of investments. Unlike stocks or mutual funds, whose value can change, real estate gives you some stability. It's a physical property that you can occupy, rent, or sell when the time is appropriate.

Additionally, during times of uncertain economies, real estate serves as an inflation hedge. Whereas money and stocks depreciate, property maintains or appreciates its value.

Tax Benefits and Financing Opportunities

One of the lesser-known benefits of investing in a second home is the possible tax savings. In India, if the property is let out, the interest on the home loan can be entirely claimed as a deduction from rental income under Section 24 of the Income Tax Act. This can go a long way in lowering one's tax liability, and the investment becomes even more valuable.

Also, while home loan interest rates remain relatively low, borrowing against a second property is easier than ever. For individuals with excellent credit, this offers the possibility of owning a high-value property without having to sell current holdings.

Challenges to Be Aware of

Though the financial opportunity of a second home is attractive, it's important to think through possible challenges:

Maintenance Expenses: A second home needs to be maintained. From utility payments and property taxes to repairs and furnishings, expenses can accumulate fast.

Risk of Vacancies: Rental income may be uneven, particularly in less busy seasons. Maintaining consistent occupancy might mean promoting the property or contracting with a property management firm.

Property Management: If the property is a distance away, it can be difficult to manage it from afar. Having a local property manager can make it easier but at an added cost.

Creating a Legacy

A second home is not only an investment—it's also a legacy. Unlike other forms of investments, it's a destination where memories are created and handed down through generations. It can be converted into a family holiday home, a vacation home, or perhaps a later retirement home.

Furthermore, with the advent of hybrid work patterns, many are thinking about converting their second homes into the main residence. This is yet another factor that creates value, creating a permanent living opportunity out of what used to be a weekend retreat.

A Strategic Move for Today and Tomorrow

Investing in a second home can be a lot more than a luxury upgrade. The right property in the right place can generate rental income, increase in value, and provide tax benefits—while serving as a personal retreat.

Yet, as with any investment, it needs careful planning and research. Check the location, learn about the local rental market, and determine the long-term potential for appreciation. Proper planning, and a second home will become a dominant asset that not only improves your living but also creates long-lasting financial security.