There can be several reasons to buy a second home– it can serve as a retirement home, or a long-term investment to reap profits through appreciation in capital values. Another category of second-home buyers is those who seek annual rental income, the moment they possess it.
It is easier if the second home that you wish to lease out is in the region of the first home where you reside. If this is not the case, it is better to have acquaintances in the town of your second home.
It is always beneficial to rent out the second property. Firstly, the monthly rent will support in paying the EMIs for your home loan. Also, the monthly maintenance charges and electricity and water charges, are to be paid by the tenant.
First and foremost, landlords should always do a background check of prospective tenants. Police verification is necessary. Also, provide that the annual rental amount that you charge is realistic, by doing a test on the market. Last, have your papers in order. Renting out a house, also means that its maintenance is taken care of by the tenant.
Letting out your second property also provides tax deductions. Your rental revenue will be a part of your total income and therefore, taxable.
However, if you have taken a loan to buy the second property, then, you are entitled to a tax rebate by deducting the amount you receive as rental income. For example, if your annual interest on the home loan is Rs 3,00,000 and your annual rental income is Rs 1,00,000, you are eligible for a tax rebate on the difference of Rs 2,00,000 (Rs 3,00,000-Rs 2,00,000). The deducted amount is considered as your expense and therefore, the tax (rebate) benefit is attached. This way, you can reduce the burden of your home loan.