Having a second home is always a plus point for several reasons and you can reap greater rewards in case you successfully rent out your second home. A second home is purchased for diverse purposes, i.e. as a home post retirement, long-term investment with the hope of getting good returns through increasing property values and also the generation of rental income annually. It makes sense if you buy your second home in proximity to the home where you live. Renting out a second home comes with several advantages as per experts. The monthly rental amount will help with the repayment of the EMIs every month which is a major benefit. Additionally, the tenants will have to bear the costs of electricity, monthly maintenance and water which would otherwise have to be borne by the owner in case the property was not rented out.
The property owner should however strive to make the entire procedure transparent and hassle free for tenants. Every landlord should conduct an extensive background verification for any potential tenant. There should also be a police verification done in this regard. The annual rental sum should be practical and in sync with market rates. You should have all the legal papers in place and there should be a rent/lease agreement for a specified tenor and with all necessary clauses in place. Maintaining two homes can be a costly proposition but if the second home is rented out, it remains in good shape since there is regular cleaning executed by the family or individuals living there.
You can also get tax benefits on renting out your second home. The rental income earned will be added to your total income for a financial year and will certainly be taxable. However, in case you have availed a loan for purchasing the property in question, you can get a rebate on taxes by subtracting the amount which you get as your rental income. Consider that you pay Rs. 2, 00, 000 as interest annually on the home loan and the rental income that you earn is Rs. 1, 50, 000. You can thus get a tax rebate on the balance of Rs. 50, 000 (2, 00, 000 – 1, 50, 000). This amount is taken as your expenditure and hence there is a rebate.
This helps in lowering the overall home loan burden as well. Additionally, the monthly rent that you get each month will also increase your overall loan eligibility since this is extra income. You can apply for another loan like a car loan or even another home loan on the basis of this added income as per experts.
