Is buying a holiday home right for you?
Imagine waking up in a cosy mountain retreat or stepping out onto the deck of a beach shack overlooking the ocean, all in your very own holiday home. No packing lists. No booking calendars. Just arriving, unwinding and making memories on your own terms.
For many Australians, owning a holiday home represents freedom, lifestyle and a tangible reward for years of hard work. It can also be a way to diversify your property portfolio and potentially generate additional income.
Yet, as with most big financial decisions, the dream needs to be balanced with a reality check. A holiday home sits at the intersection of lifestyle and investment; getting that balance right is key.
Here are some of the key considerations to work through before turning your holiday home dream into a reality:
Be clear about how you’ll really use it
The first, and most important, question to ask is why you want a holiday home.
Is it primarily:
- A family retreat?
- A long-term lifestyle plan (perhaps one day a permanent home)?
- An investment property you’ll also enjoy personally?
How often you use the property, and when, has a direct impact on its financial performance. Peak periods, like summer for coastal properties or winter for ski towns, are often the most lucrative rental windows. Using the property heavily during those times may mean missing out on the highest rental income.
It’s also important to understand whether properties in the area tend to rent seasonally or year-round. A short peak season may still be profitable, but it requires careful budgeting to cover costs through quieter months.
Tip: Be realistic, not optimistic. Many holiday homes are used less frequently than owners initially expect, particularly once travel time, upkeep and competing commitments set in.
Research the location like an investor not a visitor
Falling in love with a place on holiday doesn’t always translate into a sound property decision.
Before committing, take time to understand:
- Supply and demand for holiday rentals
- Competing listings and nightly rates
- Average occupancy levels across the year
Look beyond the accommodation itself and assess the broader area. Locations with strong amenities like cafes, shops, medical services and reliable public transport, tend to be more resilient and attractive to renters.
Planned infrastructure upgrades can also play a role in long-term capital growth. Roads, airports, marinas and tourism developments may enhance accessibility and demand over time.
Lifestyle lens: Ask yourself whether you’d still enjoy the area if it becomes busier, more commercial, or more regulated. Popular destinations often change as they grow.
Understand the local rules (they matter more than you think)
Short-term accommodation regulations vary significantly across Australia, and they’re evolving all the time.
Depending on the location, you may need to:
- Register the property for short stay use
- Comply with limits on the number of nights it can be rented
- Meet fire, safety, noise or parking requirements
- Adhere to owners’ corporation or body corporate rules
Some councils also impose levies or additional charges. For example, in Victoria a 7.5% short-stay levy applies to bookings of less than 28 consecutive days.
These rules can materially affect the viability of your holiday home, both financially and operationally.
Bottom line: Don’t assume. Confirm the rules before you buy.
Budget for full ownership costs and consider how to best finance the purchase:
Owning a holiday home comes with ongoing expenses that can add up quickly, including:
- Mortgage repayments
- Council rates
- Land tax
- Home and landlord insurance
- Public liability insurance
- Cleaning and property management fees
- Maintenance and repairs
- Utilities and internet
Having sufficient cash flow buffers is critical, particularly if rental income is seasonal or inconsistent.
Factor in the tax implications early
Tax outcomes can make a meaningful difference to whether a holiday home stacks up as part of your overall financial plan. Key considerations include:
Tax deductions
You may be able to claim deductions for expenses related to earning rental income (such as interest, maintenance and insurance), but only for the periods the home is rented or genuinely available for rent. Personal use must be carefully apportioned. The ATO provides clear guidance on holiday homes.
Negative gearing
If rental income doesn’t cover costs, losses may be deductible against other income (such as salary or business income), subject to your individual circumstances.
Capital gains tax (CGT)
If you sell the property at a profit, CGT will generally apply. Holding the property for more than 12 months may make you eligible for the 50% CGT discount.
Stamp duty and land tax
Upfront stamp duty and ongoing land tax should also be factored into your total cost of ownership.
Because rules vary by state and individual circumstances matter, speaking with your accountant or financial adviser early can help avoid costly surprises.
Consider the opportunity cost
Finally, it’s worth stepping back and asking: what else could this money do?
- Capital tied up in a holiday home may limit your ability to:
- Upgrade your main residence
- Invest further for retirement
- Maintain flexibility for lifestyle changes
For some people, the emotional and lifestyle return easily justifies that trade-off. For others, a different combination of investments, as well as renting when you holiday, may provide greater freedom and flexibility.
Bringing the dream together
A holiday home can be a deeply rewarding lifestyle choice that enhances family time, provides a sound investment option, and creates a place that truly feels like your own.
The key is ensuring it fits comfortably within your broader financial picture, rather than becoming a source of stress.
If you’re considering taking the next step, a structured conversation around cash flow, tax, borrowing capacity and long-term goals can help you move forward with confidence.
If you’d like to explore whether a holiday home makes sense for you, we’re here to help. Speak to your FMD adviser, who can also bring in our lending specialists to help if needed
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.