Do holiday rentals really bring in the big bucks or could it just be a bad case of mixing business and pleasure? Here, we explore three reasons why it might be a good idea to leave holiday homes off the investment portfolio.

When you think of the ‘Australian dream’ it conjures up all sorts of lovely ideals – including owning your very own holiday home. For many of us this is just a pipedream, but for some investors, the option to purchase a holiday house as an investment property is very much a reality.

 But, is buying a holiday house as an investment really a wise move? Or, as the good old saying goes, is it best not to mix business with pleasure?

 A beach house or secluded country cottage might be appealing for a weekend getaway but, when it comes to an investment decision, going down this path could end up causing more trouble than it is worth. Here are three possible reasons why:

 1.  Limited to certain ‘holiday’ areas

Finding the best areas to invest requires a lot of thorough research and industry know-how. Why limit opportunities by only looking for an investment property that is situated in a holiday hotspot?

Having too narrow a focus when it comes to searching for the best investment property is a crucial error and could cost dearly in the long run. Remember not to get caught up in the ‘idea’ of owning a holiday house; be realistic and invest in a property because it is a smart investment decision – not because it is a great vacation spot for two weeks of the year.

 2. Increased financial risk

No investor wants to hear the words ‘increased financial risk’ but when it comes to holiday homes purchased as an investment then investors need to be aware of the increased financial risk that they carry. This comes from rental returns varying with the seasons. Plus, if it not rented it out during the peak periods this will significantly alter the income return you can expect from the property.

In addition, from a capital growth perspective, properties in holiday spots are actually more exposed to price volatility because factors that support suburban housing markets, like infrastructure spend and employment growth, will seldom apply to these markets.

 3. Higher maintenance expenses

Holiday homes can often come with costs that aren’t typically associated with other investment properties. For example, in an ordinary lease you are likely to have the same tenant for a minimum of one year, possibly longer. Whereas, in a holiday house you could have as many 50 tenants in one year.

Higher turnover means greater repairs and ultimately more outgoings over that same period of time. Cleaning and maintenance bills are also likely to be infinitely higher – as are the headaches that potentially accompany them.

What about the furniture and fittings? How often do these need to be upgraded? Do you need to provide internet connectivity and cable television? These are just some of the extra ongoing costs that come with a holiday house – all of which can significantly influence your overall budget.

While they might seem like three very feasible reasons to rethink investing in a holiday house, another underlining factor is ‘inconsistency of income’. But do not take our word for it. The Queensland Office of Fair Trading (OFT) recently issued a reminder about the difficulties that holiday homes pose due to this very reason.

“One of the biggest issues potential owners face is not understanding the level of ongoing income and cost involved,” OFT executive director Brian Bauer said.

Hannah Schuhmann, Principal of HS Brisbane Property, agrees with the OFT, saying that she often sees investors fall victim to some of the more basic investment mistakes after buying a holiday house as an investment.

 “Not wanting to keep repeating the same mistakes over and over, we are now seeing a shift whereby more and more investors are turning their backs on ‘holiday investment properties’ for smarter investment opportunities right here in the Brisbane CBD,” says Schuhmann. 

“Nowadays investors are smarter, business-minded entrepreneurs who are more focused on the bottom line and less concerned about the bells and whistles. As such, they are looking to buy in areas that provide solid growth, modern infrastructure and increasing demand. They want a better return on investment. After all, that is what it all comes down to at the end of the day,” she says.

If you are thinking of selling your holiday house for a more reliable CBD investment contact Hannah on 0419 782 133.