Decide before the holiday frenzy: Are you buying an investment or a retreat?

The holiday-letting season is looming and presenting investors with sticky decisions.

Should they buy a retreat they’ll want to use some of the time and rent out for the rest, or is it better to buy purely as an investment? And in either case, does it make more financial sense to buy a string of holiday homes in different locations or to buy the best they can in one?

Financial advisor Gemma Mitchell, author of The Money Reset, says it’s vital to determine the main goal first.

“Buying a lifestyle asset and becoming almost an ‘accidental investor’, renting it out when they’re not using it, might not turn out the best investment strategy in terms of capital growth and returns, but it is a good way to offset some of the costs,” she says.

“If, on the other hand, it’s purely an investment, you’ll think about it differently, and look for somewhere that’s low maintenance with a good cash flow.”

In the case of a holiday home being bought for both personal use and rental, investors might decide to purchase the best one they can, in an excellent location, to suit their own needs. For investors, the decision is more complex.

“Buying a number is a good way to spread the risk and opportunity for different rates of growth and it gives you financial flexibility as you can sell at different times when you want capital,” Mitchell says.

“But it might mean less income, while the outgoings might be similar. Multiple properties can mean multiple fixed expenses, including the costs of managing them, as well as the stamp duty in buying each.”

Chief executive and co-founder of Shore Financial, Theo Chambers, is firmly on the side of buying the best holiday house investment you can, rather than several smaller properties.

In addition to working for your own use or as part of a transition to retirement plan, it can also be the most profitable outlay.

“A large house in a more desirable location, which is more expensive, will appreciate in value more and rent more consistently,” he says. “People want to rent a place not far from a town where they can visit restaurants and pubs.

“As well, often they go with other families and want a bigger house than they have at home, and a good backyard for a barbecue. From the maintenance point of view, it’s also better. Trying to maintain three or four rentals is a headache.”

He advises investors to review the bookings for houses and apartments in any chosen location to determine how often they’re reserved and at what price.

However, Daryl Smith, buyer’s advocate, real estate agent and the head of growth at MadeComfy, which manages short-term rentals, says sometimes two two-bedroom apartments on the Sunshine Coast can beat a big house on the Mornington Peninsula for returns.

“It depends on picking the correct areas where there’s still growth opportunities,” says Smith, who lists Australia’s top five holiday home investments as Burleigh Heads to Tweed Heads; Noosa; Busselton and Dunsborough to Margaret River; the Hunter Valley; and the NSW South Coast, from Kiama to Shell Harbour.

“There can be good earnings potential for both.”