A second home overseas can be many things – an escape, an asset, an investment not just in your own family time and mental health, but in bricks and mortar too. But whether you plan to use your property for holidays, generate rental income, or both, clear intentions and realistic expectations are essential from the outset.
Around 40% of overseas buyers are purchasing a holiday home, while just 5% buy solely for investment, according to recent surveys (the rest are retirees and other relocators). However there is a grey area inbetween where buyers aim for a bit of both.
These two goals require very different approaches, and understanding the financial distinctions early can prevent costly mistakes. A second home purchase driven by lifestyle reasons allows you to be guided by your heart and choose somewhere you love. On the other hand, investing in real estate for the sole purpose of growing your wealth requires thinking with your head and a clinical, business-minded approach.
Whichever camp you’re in, key to a successful purchase is having clear goals and managing expectations for your property from the outset. We take a closer look
What are my holiday home priorities?
Got plans to treat yourself to a holiday home in 2026, somewhere for you and the family to visit and enjoy time together? Your wish-list will revolve around locations and lifestyles that fit your individual tastes, places you enjoy spending time. Strong rental returns and high occupancy levels will take the backseat. Of course, these things are not incompatible.
Quality property in resorts or areas with a strong foreign market tend by default to have rental potential. Owners with no desire or need to let their property will find this a comfort, not least because it adds value to their asset.
However, planning a side-hustle of renting out the property will tend to muddy the waters when planning your purchase. And, to mix metaphors, riding two horses at the same time is rarely very comfortable. For many second homebuyers though, generating rental income is either a necessity – for covering running costs and/or paying a mortgage, or as is often the case, an unmissable opportunity that comes with their lifestyle purchase. Crucially, you can control how much your property is let, ensuring first and foremost it is always available when you want to use it.
There are other benefits to offering your property to holiday lets – a flow of guests at your property and an agent checking it regularly is good for security. On a broader level, healthy occupancy of tourist accommodation benefits the local area. It keeps communities busy and brings in income for businesses.
Can you rent out a holiday home for extra income?
Yes, many second home owners choose to let their overseas property as a short-term rental, either seasonally or year-round. This can be a useful way to offset running costs and generate passive income. Choosing a property with strong tourist appeal will enhance rental potential.
Holiday letting also benefits property security and the local economy. Regular guests keep the home in use and provide income to local businesses. Working with a reputable holiday rental agent can simplify bookings, guest management and maintenance.
What should be my investment priorities?
If your primary goal is return on investment, you’re looking at the property as a financial asset rather than a lifestyle purchase. This means focusing on yield, capital appreciation, resale value and market conditions.
Successful property investors approach the process with a business mindset, analysing factors like purchase price, projected income, taxation and management costs. Common investment goals include long-term rental income, short-term holiday lets, or capital gains through resale.
It also means being business-minded about all costs, and that includes currency transactions if you are based in a different country.
How do yields and returns differ?
Holiday lets (short-term rentals) can offer higher yields in tourist hotspots, but they come with greater risk and more hands-on management. Occupancy may be seasonal, and success depends on local tourism trends. Long-term residential lets usually provide lower but stable income, with fewer management demands. They’re often preferred by hands-off investors looking for reliable cash flow and less volatility.
Your desired level of involvement will influence the type of property and return to target. Fully managed options offer convenience but reduce yield due to service fees.
What are the risks and benefits of off-plan property?
Buying off-plan overseas means purchasing a property before it’s built. It appeals to both investors and lifestyle buyers. Early investors are drawn by the potential for capital gains if the property’s value increases between contract and completion, which it certainly should. In some cases, properties can be resold (flipped) before construction ends. They also end up with a property that is brand-new and eminently rentable, especially long-term.
Incentives such as deferred payment plans, free furniture packages, or guaranteed rental income make off-plan attractive. However, buyers should research the developer’s track record and understand the legal and financial risks involved in case of delays or market downturns.
What tax and legal issues should you consider?
It won’t have escaped your notice that there have been many local campaigns against excess tourism, especially in places like Barcelona, Mallorca, Marseilles and others. It has even led to calls to ban overseas investors, or tax them out of the market.
So it is likely that in the biggest tourist markets the authorities will be at least clamping down on illegal and untaxed lets. Overseas rental income is often taxed locally, and the rules vary significantly by country. Licensing requirements and restrictions on short-term lets are likely to be tight, and getting tighter, imposing additional costs like tourist taxes or community fees.
It’s essential to work with a local tax adviser and lawyer to understand your obligations and avoid legal issues. Buyers financing their purchase should also consult a mortgage broker familiar with overseas lending.
What role does currency play in overseas property investment?
Whether you’re transferring money to buy a property overseas, paying for renovations, or repatriating rental income, currency exchange introduces financial risk. Fluctuations in exchange rates can reduce your returns or increase your costs significantly over time.
A common mistake among investors is to focus on tax and rental yield while ignoring currency strategy. Using a specialist provider like Smart Currency Exchange can help you time your transfers, manage risk, and avoid hidden fees. Forward contracts, rate alerts, and tailored guidance can protect your profits over the long term.
Final thoughts
The key financial difference between a second home and an investment property overseas lies in your intentions and planning strategy. Lifestyle buyers prioritise enjoyment and flexibility, while investors seek measurable returns. Many buyers fall somewhere in the middle — and that’s okay — as long as you make informed decisions.
Speak to trusted advisers, research local markets, and don’t underestimate the importance of managing currency transfers for property abroad. Whether you’re buying a villa in Spain, an apartment in Lisbon, or a farmhouse in Tuscany, the right financial strategy will help you maximise value and minimise risk.
