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Hewison Private Wealth - Insights
Hewison Insights

Will you be tempted to buy a holiday home this Summer?

Glenn Fairbairn
Director, Partner & Wealth Adviser
14 Dec 2022

Over the Christmas and New Year period many Australians travel to coastal or regional towns to escape the hustle and bustle of city life. It’s often during this time that many are tempted to buy a holiday house. Let’s be honest, we’ve all done it. Strolled the main streets of sleepy townships gazing at properties for sale in the real estate agents windows, or searching online for local listings over coffee at our favourite local cafe.

Over the years I’ve had many conversations with clients who have wanted to buy a holiday house for their family to enjoy over the holiday periods.  

There are several things to consider when purchasing a holiday house, however, the number one thing I ask clients is: Is it going to be an investment, or a true holiday house and lifestyle asset?  

This is an important question because the decision-making process can be completely different. For an investment, the focus may be location, rental returns, future development potential, and the like, whereas for a holiday home your decision may be driven by the style or architecture of the home, all of which are to one’s personal taste. 

I have seen many occasions where clients have purchased holiday houses, with the intention of using them as a lifestyle property but are then lured by seasonally high rents over Christmas, New Year and Easter. From a financial perspective that is great, but has this defeated the purpose of purchasing the property to begin with? Are you going to be happy travelling to your holiday house during off-peak periods, or will it just sit dormant for months on end, and slowly transition to a lazy investment property? 

I am not saying that every decision you make should be financially motivated. However, from a financial perspective, purchasing a holiday home, which will only be used over the holiday periods, is generally not a wise decision.  

Many prospective buyers only consider the exorbitant rent they are forced to pay over peak periods and think it would be much cheaper to just buy the property. However, you also need to consider the opportunity cost of locking up large amounts of capital in an asset that is used sporadically throughout the year. 

Before making the purchase, I ask clients to consider the following: 

If borrowing funds: What are your projected outgoings, such as interest, council rates, general maintenance, etc. If these outgoings are greater than the rent you would pay, then from a cash flow perspective, buying the property is an inferior financial outcome.  

If using cash: What investment return are you forgoing to purchase the holiday home? If the current return on your capital, plus property outgoings are greater than the rent you would pay, you may be better off keeping your capital invested, and using the income earnings to pay the rent on a holiday house. This option also gives you the flexibility to try different locations and not be locked in to the one spot. 

The purpose of this blog is not to necessarily put you off buying a family holiday home, as you can’t put a price on everything, but you need to be fully informed and have eyes wide open when considering a large financial commitment such as a holiday home purchase.