Retirement planning: why it makes sense to buy a second home


When retirement approaches, people generally do not know how to invest their hard-earned money. Most retirees tend to invest in plans where regular monthly income can supplement their pension (if any). From mutual funds to monthly income plans to gold, there are many options available in the market, but it also makes things confusing.

One of these options is to invest the accumulated wealth in the purchase of a second home. In fact, it has become one of the most popular investment options these days, as property is said to increase in value over time. The following factors support investing in a second home:

Regular rental income

Regular rental income is a big plus with real estate investments. While you are in a dilemma to invest the corpus in a fruitful instrument, the second home tops the list due to its income-generating capacity. Investments in gold or mutual funds are less likely to generate as much monthly income as those from rental property. This income coupled with your pension will be a double advantage for the retiree.

Raise rents

In most cases, the value of the real estate investment increases over time, as does the rental potential. Although the cost remains the same, the increase in rents is an additional source of income for you. Even if the person has a home loan, the monthly rent will cover the decreasing EMI. Once the loan is fully paid off, this rental is your pure income.

However, if you opt for other pension plans, the chances of obtaining high returns come with high risk, as these instruments are generally linked to the stock market. Exposure to very high-risk instruments can be dangerous for this age group.

Tax savings

Buying a second home comes with additional tax benefits. Investment in a second home enjoys tax advantages under Section 80C and Section 10(10A) of the Income Tax Act, although other retiree investments are also covered by these items. For example, buying a house secures benefits under Section 80C because it provides benefits on the principal amount of the home loan. In addition to this, the interest paid on the home loan also qualifies for tax deductions under Section 24. It should be noted that when you buy a second home, you can claim a deduction of Rs 1.5 lakh on the principal amount of the home loan and Rs 2 lakh on the interest payment under Sections 80C and 24B, respectively.

Emergency coverage

While you’re in your fall years, a second home can be a solid asset. With rising levels of inflation, rental income and rising property values ​​can act as a cushion against emergencies. Although some retirement plans offer to provide a lump sum for your children in your absence, a second home can be a solid asset in the event of an eventuality. It can also be sold if the need arises.

Walk with caution

After listing the advantages of a second home, it is also advisable to be careful when buying a second home. You should try to buy a second home at least 10-15 years before you retire so you can comfortably afford EMIs.

In addition to this, taking the help of a professional financial planner is also advised. This way you would be able to assess the impact and changes in your retirement portfolio. Investing in a second home should also be supported by proper research. A property purchased in a prime location or close to markets will yield better rental returns than one purchased in a remote location.

In conclusion, if planned and executed correctly, buying a second home for retirement can be a very smart move.

(By Suren Goyal, Partner, RPS Group)

Disclaimer: This is the personal opinion of the author.

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