A second home is sure to enhance your financial stability with the added income that you get from the rent. If you’re considering buying a second home, you’re probably contemplating on where your next home should be—the city? Or probably the suburbs? A lesser known but highly effective way to increase your income is by buying a vacation rental property.

Tourism has almost always provided a good market, and more and more Indian, as well as non-Indian travelers, are keen to explore the sights and sounds of our country. This gives you the perfect opportunity to extend your hospitality and generate income side-by-side.

Perks of Vacation Homes

  • Great Source of Income

A cozy home in a fantastic tourism spot is more than just your vacation home. When you’re not using it, you can always rent out the property to tourists, who more often than not, stay for a short span of time and shell out quite a bit for that period. This rent is a great way to earn extra money, as the gross amount is far more than what you’ll spend on the maintenance of the property.

  • Getting a Tax Break

When you own two self-occupied housing properties, you are required to pay a tax on both the homes. But since you reside in only one of these homes, and utilize your vacation home as a source of rent, 30% of the rental income is exempt from being taxed on. On top of this, 30% of the net annual value (Annual Rent – Municipal Taxes), can be deducted from your taxable income.

There are more ways to save tax when you own multiple homes. For the Home Loan on the self-occupied property, Section 80C allows a tax exemption of up to Rs. 1 lakh on the entire principal amount. Also, Section 24 of the Income Tax Act allows you a tax deduction of up to Rs. 1.5 lakh on the interest amount, for self-occupied homes. When it comes to the Home Loan for the second property, which has been let out on rent, you get a deduction only on the interest paid and not the principal amount. However, there is no limit for the amount of interest that can be deducted on the second home.

  • Retiring in Style

A second home builds equity. There is a lesser chance of a drop in the market prices, especially for a vacation home; making it a safe investment.

With a vacation home, you pick a neighborhood of your choice and can enjoy the property for the rest of your life.

Why Choose a Loan for Vacation Rental Property?

Banks and NBFCs offer several features like low rates of interest and additional benefits like pre-payment facilities, loan top-ups, flexible loan schemes, and even balance loan transfers. The rates of interest vary with each lender, so make sure you’re getting the best deal. When choosing a construction loan for vacation home, ensure that you organise your finances well by keeping track of your savings, monthly income, taxes, and other factors that may impact your EMIs on the new loan.

To apply for a loan on your vacation home, most financial institutions require you to be a citizen of the same country and at be least 25 years old. A professional work experience of at least 3 years also increases your chances of being eligible for a Home Loan. Check with your lender on the limit levied on the loan amount to see if it suits your requirements.

As you can see, buying a vacation home may not be a very popular move, but it has several rewarding factors that you can enjoy.

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