With the summer holidays upon us, many people have begun the search for the perfect rental for a well-earned break. For some would-be investors, it’s a natural extension to consider a holiday home investment of their own at this time of year. 

But here is some blunt advice: investing in a holiday home is anything but a holiday.

There’s never any shortage of apparent holiday home bargains, with promises of attractive, albeit seasonal, rent as well as the luxury of being able to move in one day. Or so the thinking goes.

I see it differently and warn investors not to let their emotions cloud their view. Recent market shifts and easing prices might draw investors to select holiday home markets in search of a bargain. There’s a perception that properties in regional markets or holiday destinations are more affordable and less affected by price movements. In fact, the opposite is true.

The suitability of a holiday home investment will obviously depend on the individual investor and their reasons for investing. For those prioritising security, this is achieved through a mix of yield and capital growth and holiday home investments will typically deliver neither. 

Seasonal factors mean rental yield is unreliable and unpredictable, which most financiers will take issue with, particularly in the current climate.

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.

Still, some investors with considerable means may be willing to cop the loss in exchange for the peace of mind of buying their own slice of paradise. But this begs the question why? Why invest in a property that loses you money when nothing is stopping you holidaying in that spot – in a short term rental – anyway?

The vast majority of holiday home investments take money out of investors’ pockets as opposed to putting money in. 

Holiday home investments are a prime example of a well-worn trap many investors fall into: having too narrow a focus when it comes to searching for the best investment property.

Investors are naturally drawn to cities and suburbs they’re familiar with when they’re searching for an investment property. They figure they know the area and this provides a false sense of comfort. A holiday home investment is an extension of this mindset, and one fraught with danger.

Confining your search to areas familiar to you is, as an investor, a crucial error. Not only are you unaware of better investment opportunities more appropriate to your means, you also invite concentration risk into the equation.

My advice to people weighing up a holiday home or lifestyle investment is simple: enjoy your summer break in your favourite destination, but don’t put your money into an investment that won’t work for you.