Fancy a holiday home to call your own?

If owning a home is the great Australian dream, surely owning a holiday home is the dream on steroids.

To most of us, that sounds like paradise.

But does a holiday house guarantee strong rental returns? On paper, a holiday investment property looks like your gateway to occasional mini-breaks plus a tidy money-spinner for the rest of the year when you're back at work. But there are several things to consider when investing in a holiday home. Unlike a regular investment property, you can't bank on a steady flow of rental returns all year round.

Location is a key factor. If you buy a coastal property, what's the bet you'll want to pick the warmer months for your own holiday, which just happens to be when your highest tenant demand is? Or if you opt for the bush, will lodgers be content in an isolated area lacking nearby supermarkets, cafes and restaurants?

Your first priority should be to research areas that are attractive to visit all year round. And decide whether you're prepared to sacrifice your preferred holiday time for guaranteed rental returns during peak periods.

Use a home loans calculator to do your sums once you've chosen an ideal location. Putting down a 20 percent deposit, which would be $60,000 for a $300,000 home, will avoid excess charges like lender's mortgage insurance.

Stamp duty and council rates are extra costs on top of that initial outlay. Then comes the cash for monthly mortgage repayments, council rates, ongoing maintenance and furnishing. Additionally, your guests may expect household features once considered "extras" – such as air-conditioning, Foxtel and barbecues – as a given.

Also remember to budget for advertising through your managing real estate agent, or avoid this cost altogether by listing your holiday property on an online accommodation site like Stayz and handling bookings yourself. Responding to customer enquiries promptly, by phone or email, is important in developing a good reputation and attracting future guests.

Tax benefits on your holiday home depend on the amount of time you rent it out annually. You can't claim any interest on your loan as a tax deduction unless the property is available for rent for part of each year.

The more time it is used by you, the smaller the tax deductions are. To find out what else you can claim, hire a quantity surveyor to draw up a schedule.

A holiday home is not a high-yield investment. But if you take care of your property and provide good customer service, expect to get a return that covers your costs, plus a second home to call your own.

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