The great escape: should you invest in a holiday home?

Do you daydream about escaping the city to spend a blissful weekend in your very own country retreat or beach shack? Rising interest rates and cost-of-living pressures might mean the prospect of owning your own holiday home is out of reach right now. But it could be worth planning ahead and weighing up your options for a time when you can turn this dream into a reality. 

Holiday homes can prove to be a handy investment. Apart from reaping capital gains if the property increases in value over time, there’s also the possibility of using your holiday home to generate income by putting it on the short-stay accommodation market.  

If you’re considering buying a holiday home for investment purposes, read on to learn more about the ins and outs of holiday home ownership.  

Ponder why before you buy 

Many people treat their holiday home as a lifestyle purchase, renting it out when they aren’t using it themselves to make some extra money and help cover some of the mortgage costs. Others handle it more like an investment, leasing it as a short-stay accommodation business year-round. Regardless of your approach, you’ll need to weigh up the pros and cons before deciding what’s right for you.  

Qualified property investment advisor and buyer’s advocate Cate Bakos has assisted many clients to buy holiday homes and investment properties. She believes it’s important to reflect on your motivations for buying by asking yourself some important questions. 

'[Ask yourself] "Is it really an investment? Or am I trying to retrofit an ideal to suit my own holiday house dreams - whether it be now or one day in the future when I plan to utilise the property for my own needs?”' says Cate. 

While the regional property market has been red-hot in the past few years, Cate points out that runaway capital growth isn’t guaranteed in the future. 'Capital growth requires consistent, sustainable drivers. A flash in the pan is not considered sustainable growth in my view. The cost of buying and selling quickly erodes any profits if an investor is ‘flipping’ or ‘trading’ property in a short time frame,' Cate says. 

So what are some growth drivers to look out for when scoping out potential holiday home locations? Cate explains that increasing household incomes and education levels influence property price growth, but accessibility to employers and amenities like a village, shops, cafes and public transport play a role also, as well as local infrastructure upgrades. 

Calculate the costs 

Sydney-based interior designer Aimee McKechnie has experienced all the ins and outs of holiday home ownership. As the founder of luxe coastal getaway The Shore at Gerringong, she believes it’s important to carefully consider the cost of putting your holiday home on the short-term accommodation market. 

According to Aimee, you’ll need to cover mortgage repayments, council rates and home insurance, but you’ll also have to factor in public liability insurance, short-term rental insurance, accommodation platform fees, cleaning fees and maintenance costs, which Aimee believes should be 'a huge consideration' for prospective buyers.   

'We paint the inside and outside of the house every year because it's white. At the same time we also do all the rug, sofa and upholstery cleaning and patch any damage to the walls,' says Aimee, who closes her property for eight weeks during winter to complete routine maintenance. 

If you’re counting on receiving a steady income from your property, make sure you check out the Australian Tax Office website so you’re aware of the tax implications of renting out a holiday home. You’ll also need to figure out how you’ll manage during slow patches and the off-peak season.  

'Do your research beforehand to understand whether local properties rent seasonally or year-round,' says Aimee, before adding that figuring out how much time you want to spend at the property (versus renting it out) is key because this will impact your income. Spoiler alert: you’ll likely need to forego spending peak holiday periods at your holiday home if you want to maximise your rental return. 

Then there is the time cost. Aimee estimates she spends 25 hours a week managing the day-to-day tasks associated with operating an accommodation business. Some tasks can be outsourced to cleaners and tradespeople, but that comes at a cost. 

'I’d probably spend at least two hours every day on the admin side of the property and at least one whole day a week on site,' says Aimee, who adds that this is why living within driving distance of your holiday home is wise.   

The property type and location will also impact your insurance and maintenance costs. If you purchase a holiday home on acreage you might need to buy a ride-on mower or hire a gardener also. Love the idea of owning a beach house? Coastal properties come with their own unique challenges. 

'With a house that’s near the ocean, you need to hose down the front of that house almost every week, because otherwise the locks will seize up. The salt does so much damage, so unless you want a house that’s damaged within a couple of years, you have to put the time and effort into maintenance,' says Aimee.