Investing in a holiday home

AMP can help you own your dream home. But before investing, start asking yourself these important questions.

And you start thinking: “If we had our own place, we could go there all year ‘round and instead of contributing to someone else’s financial future we could be contributing to our own”.

It’s a tempting thought.


That was then...this is now

In days gone by, a second home by the sea might only have been a glorified shack with an outside loo, but it was an integral part of the Aussie dream. And it was pretty cheap so it didn’t break the bank. But fast forward to the present day and you’d be hard pressed to find many cheap and cheerful beach shacks anywhere near a major city. These days, a holiday house is a major financial investment that’s got to work over the long term. And if you’re like most Australians, any major financial investment becomes an emotional investment too.

The great dream...

  • It’ll be great for the kids - they will love it and the memories will last a lifetime!
  • It’ll be great for your sense of freedom - you can transform it into the holiday home of your dreams!
  • It’ll be great for cash flow - you could receive a regular income from tenants.
  • It’ll be great for your tax bill - your tax deductions will mount up.
  • It’ll be a great way to make money over time - you could be looking at a decent capital gain if the value of your holiday home increases.  

...versus the reality

Before turning your dream into a reality, you should ask yourself what owning a holiday home will really be like.

Do you want to go on holiday to the same place every year? Young kids will enjoy the routine. But think about when the kids are older and looking for more cultural experiences.

Will you be able to improve the property? Many holiday homes are part of a body corporate, so:

  • you may not be able to renovate or redecorate easily
  • the value of your property could be affected by other owners.

How easy will it be to attract tenants? Unlike a permanent rental, occupancy rates can fluctuate throughout the year, depending on school holidays, long weekends, public holidays and summer. Plus external factors can also affect bookings, like economic downturns. So you should ask yourself how attractive the property will be to prospective holiday makers.

  • Is it within driving distance of a major city?
  • Is there a nearby airport?
  • Is there an oversupply of similar properties in the area?

What are the running costs? Although many of these are tax-deductible, your rental income could be swallowed up by:

  • cleaning costs every time a tenant leaves
  • body corporate fees
  • agents’ fees
  • marketing costs
  • utility bills
  • general upkeep.

What sort of capital gain could you be looking at? Holiday regions can be the first to suffer and the last to recover when the market turns. So it’s best to do your homework, buy in the right area and hold onto the property for long enough. And don’t forget about stamp duty when you buy the property and capital gains tax when you sell.

A holiday home isn’t for everyone. If all you’re worried about is your return, there may be better ways to invest your money—a city apartment with a permanent tenant or Australian shares with franked dividends are just a couple of examples.

But if you’re looking for a family getaway that will leave your kids with wonderful memories, plus the opportunity to reduce your tax bill, receive some ongoing income and benefit from a potential long-term capital gain, a holiday home could be for you.

Making the decision to buy or not to buy can be complex, so it’s important to talk to your financial adviser or a mortgage broker before you take the plunge.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.