« How to pay for an IIT Engineering degree with only PPF investment? Which are the best and worst index funds of India in Mar-2024? »

How to buy a second house which is a luxury property?

Posted on 28 Feb 2024
Author: Sayan Sircar

Tags: House Purchase

6 mins read
📢Join 3500+ readers on WhatsApp and get new post notifications!

This article gives you some points to think about if you are buying a second house which is a luxury property.

How to buy a second house which is a luxury property?

This article is a part of our detailed article series on the concept of buying luxury properties. Ensure you have read the other parts here:

What should be your income to buy a luxury property in India?

This article shows the minimum income needed to buy a luxury property in India.

How to buy luxury property in India from salary income?

This article helps you figure out how to purchase real estate priced over ₹1.5 crore.

📚 Topics covered:

Introduction
How to fund your second house?
- Via home loan
- Via own funds
Which builders should you choose for your new house?
What to do with the old house once you shift?

Introduction

This is the second part in the series of buying luxury real estate. The first part, which talks about buying a luxury property as a first house, is here: How to buy luxury property in India from salary income?.

In this article, we will consider the case where you already have a house of your own and now planning to purchase to a new luxury house. We will consider a luxury property to be one that costs ₹1.5 crores or more.

How to fund your second house?

Via home loan

If you are planning to take a home loan for the second home, you need to check how much capacity of EMI payment you have left. There are two limits:

the bank enforced limit of total EMI/monthly income being less than a typical 30%
how much extra EMI you can afford to take on given the investments you are making for your other goals

You should of course buy the property jointly with your spouse if possible due to multiple benefits: Home loan tax benefits that you get when you buy a property jointly with your spouse.

Via own funds

Given the high price of luxury properties, you need to consider how much down-payment you are planning to put in. The bank will insist for a minimum of 25% in most cases.

Warning: If this is a resale property, the bank will only give a loan as per the registration amount which can be lower than the market price

If you have a large windfall from

another property sale: How Section 54EC helps you save tax when you sell property
profits in the stock market: Sec 54F: a hack that can save lakhs in taxes when you buy a house
company stock like RSU or ESOPs. These also get Section 54F benefit
an inheritance that you recently came across

then you can use that amount for the down payment.

If you change your mind at any point regarding this purchase, you can always calculate your returns and exit if needed: How to correctly calculate returns from an under construction flat?

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Also read
How to file TDS for Property Purchase: A Step-by-Step Guide

Which builders should you choose for your new house?

We need to check for these things for the builder who is offering the property:

Reputation in the market for timely deliveries
Active RERA registration for the respective state
No active court cases or disputes regarding the promoters or executives
The builder should preferably be listed on the stock exchange to promote complete transparency on financials

Such properties will be predictably more expensive than those without all these checks being true.

To understand how to fund a luxury real estate property:

What to do with the old house once you shift?

We are assuming that the whole purpose of purchasing the luxury second house is to live in it. The question that arises is what to do with the older property once you move to the new one.

Option 1: Sell the old house

If you sell your old house once you move to the new one, you can pay off a large part of the new home loan and also save capital gains tax.

Option 2: Keep the old house on rent

If the rental yield on the old house is above market rents in that neighbourhood for similar properties, you should keep it on rent for at least some time. You need to consider the after-tax rental yield and any maintenance cost.

Option 3: Stay in the old house and give the new house on rent

This option does not make a lot of senses unless there are any of these reasons:

the old house is convenient for schools, office commute or neighbourhood
you have elders in the family who you need to take care of and cannot move
the new house is in a neighbourhood that is still developing

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

For resident Indians 🇮🇳:

For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:

Share on WhatsApp:

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Previous and next articles:

<p>PPF is a great safe and guaranteed investment that can be used for investing enough to pay for a 4-year IIT engineering degree.</p>

Children

How to pay for an IIT Engineering degree with only PPF investment?

PPF is a great safe and guaranteed investment that can be used for investing enough to pay for a 4-year IIT engineering degree.

Published: 25 February 2024

11 MIN READ

<p>This article gives an easy to use Excel list of Index Funds in India for you to know which ones to avoid and which ones can be considered for investing.</p>

Mutual Funds

Which are the best and worst index funds of India in Mar-2024?

This article gives an easy to use Excel list of Index Funds in India for you to know which ones to avoid and which ones can be considered for investing.

Published: 1 March 2024

3 MIN READ

Latest articles:

<p>This article debunks common myths about SIPs and SWPs, showing how unpredictable returns impact wealth creation and retirement planning since you will never get fixed steady or average returns.</p>

Portfolio Review

Stock Markets do not give Fixed Return like FD: What to do instead?

This article debunks common myths about SIPs and SWPs, showing how unpredictable returns impact wealth creation and retirement planning since you will never get fixed steady or average returns.

Published: 25 December 2024

3 MIN READ

<p>This article provides an alternative to the usual safe investments that retirees choose vs growing their wealth without taking market risk themselves.</p>

Senior Citizens Retirement

Can senior citizens get both safety and high returns from their retirement portfolio?

This article provides an alternative to the usual safe investments that retirees choose vs growing their wealth without taking market risk themselves.

Published: 22 December 2024

8 MIN READ

Topics you will like:

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

Arthgyaan

Supporting everyone's personal finance journey