Investing in a second home? Here are five things you should keep in mind before you seal the deal

Charan Singh, a 42- year old Delhi-based businessman had purchased a house in Kochi as investment on the advice of a friend, as he was told that home prices were steadily rising in that area. However, Singh now wants to sell it off as staying in Delhi, he hardly finds the time to visit Kochi and the house has been without a tenant for over a year.

Buying a second home as an investment can be a good choice, but there are a few things you should keep in mind.

1.Assess your financial situation

“This is a pure investment, not for personal use. Therefore, one has to take the heart out of the thought process and use only the brain. There’s no emotional attachment to any of these investments. Do it purely for financial or investment purposes—that is very important for making a decision.” says B. Srinivasan, director and founder, Shree Sidvin Investment Advisors, a financial planning firm.

As a general rule of financial prudence, the total EMI obligations of a household should ideally not exceed 30% to a maximum of 40% of the family’s take-home income.

“If a person's current EMI commitments are well below this threshold, they may consider taking on a fresh loan. However, if EMIs are already consuming 30-40% of the income, it is advisable to avoid any additional debt burden,” says Sunil Dewali, co-CEO of Andromeda Sales and Distribution pvt Ltd, parent company of Andromeda Realty Advisors.

“Even otherwise, you should have a minimum 50% in your hand on the value of the new property. Your purchase cost—out of that—your loan should not be more than 50%. And if you don’t have a tenant also, you should have the ability to pay the EMI. All of this is important when you are buying. Everything else is secondary,” says Srinivasan.

2.Location. Location. Location

The choice of location and type of second home largely depends on the purpose behind the purchase. If you're buying it as a lifestyle asset—to use as a weekend getaway or vacation retreat—you may prefer locations like hill stations, beach towns, or religious destinations, depending on your personal preferences.

“However, if the primary objective is investment, the focus should shift to areas with strong potential for capital appreciation and rental income,” says Dewali.

Historically, locations undergoing major infrastructure development, improved connectivity, rapid industrialization, and economic expansion tend to deliver higher property value growth and better rental yields.

“These could be metro cities or fast-developing Tier 2 and Tier 3 regions,” says Dewali.

For instance, areas like Jewar, Greater Noida, and Noida have seen significant appreciation in property prices—well above the national average—due to transformative projects like the upcoming Jewar International Airport, new economic zones, industrial corridors, and growing demand for commercial spaces. Such regions offer promising opportunities for investors seeking long-term value and returns.

3.How would you handle a tenant's complaint about a leaking bathroom?

Assessing one's risk tolerance for real estate investment requires honest self-evaluation across multiple dimensions.

“Consider your financial resilience—ability to withstand extended vacancy periods, sudden maintenance requirements, or property value fluctuations. Evaluate your stress response to unpredictable scenarios like problematic tenants or regulatory changes affecting property ownership,” says Prashant Thakur, regional director and head - research, ANAROCK Group, a real estate consultant.

Additionally, consider diversifying your investment portfolio to prevent over exposure to real estate. Your comfort with these uncertainties should directly influence the type, location, and price point of your second property investment to ensure alignment with your overall risk profile.

“Any investment we do should be under our control thoroughly. If you are buying a property outside the city where you are living, you should be clear—are you in a position to understand their topography, their demography, who is going to be your user, which location you are buying,” says Srinivasan. In your absence, is there somebody to take care of the property? Suddenly if the tenant calls you saying the bathroom is leaking, what will you do?”

4.Consider rental potential

Rental yield assessment is absolutely critical when investing in a second property, particularly for properties acquired primarily as income-generating assets.

“Conduct comprehensive market analysis of rental demand, prevailing rates, and occupancy patterns in the target location. Factor in seasonal fluctuations, especially in vacation destinations where peak and off-peak rental disparities can be significant. Calculate potential return on investment by comparing projected annual rental income against total acquisition costs and ongoing expenses,” says Thakur.

Also Read: Real estate or gold—What’s the best investment in uncertain times?

Even if immediate rental income is not the primary objective, understanding rental potential provides valuable insight into market liquidity and offers a fallback financial strategy should circumstances change.

5. Have an exit strategy

Having a well-defined exit strategy before purchasing a second property is a wise investment practice. Market conditions evolve, personal circumstances change, and financial goals may shift—necessitating property liquidation at some point.

A predetermined exit strategy helps in making objective decisions rather than emotional ones when the time comes. “Consider multiple exit pathways: outright sale, leveraging equity for future investments, or transferring the asset to family members. Understanding the property's marketability factors—location appeal, unique selling propositions, and target buyer segments—enables strategic positioning for eventual disposition,” says Thakur.

Also Read: Major relief for homeowners: ITAT rules redeveloped flats not taxable as 'other income

Additionally, familiarize yourself with tax implications of property disposal, including capital gains considerations, to maximize returns when executing your exit plan.

Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics