Buying a second House as an InvestmentPurchase of a second house as an investment
So Gaurang is considering buying a second house. At Gaurang we earn a good wage that comes with a performance-related incentive. The Fund has placed in a diversified equity, investment fund, deposit and bond portfolios and is comfortable with its target financials. Therefore, he thinks it might be a good thing to start investing in a second real estate now.
He wants a vacation home near the hill on the edge of town. One of his closest friends says he should buy a place in the town that can be let. Which are the things Gaurang should consider before making a purchase? Gaurang's main reason should be the reason why he wants to buy the second house.
When the intention is to have a vacation home that the familiy can use as a week-end gateway, the only return that the investment earns is the random rental that the place can make if the familiy does not use it. Later on, it may turn out to be difficult from an emotional point of view to buy a home and use it as a trip for the whole house.
Therefore, this decision should be considered as a benefit rather than an investment. Purchasing an apartment in the town is a good investment concept that can over the years earn a reasonable rent rate and provide a good resource for old age incomes. When the goal is the mere investment returns for the present and he is planning to buy and sale, he must select the location and the real estate very careful.
Investment in a privately-held investment vehicle may allow him to achieve similar yields with lower risk selectivity. So Gaurang can still buy the second home as an investment and perhaps even buy it later. If he needs it, he can re-invest the cash in a better home, perhaps to generate a steady salary after he retires.
Perhaps he can make a better decision if he better defined his needs and assessed the choices solely in the light of yield and risks.