Making plans to travel for an extended period or indefinitely is exciting. An extended period of travel doesn’t happen however without making a few decisions to tie up the life you currently have. As a home owner one such decision is, what to do with your home? Broadly speaking the choices are to either sell it or rent it and the other less considered options are having someone house sit or leaving your home vacant.
For some the decision about what to do with theirtheir will be straight forward and for others can it can feel impossible to decide. If you ask for advice or opinions from others (and sometimes even when you don’t ask) you will get varied responses as to what’s the ‘right’ thing to do and this can add to your confusion because often these opinions are not based on understanding your personal circumstances or needs.
Lets be clear about one thing – there is no “right” or “wrong” decision here. As it often is, there is only what best suits your circumstances and you (and your partner or family). Whether you are someone who knows what you would do or you are someone feeling very unsure this article aims to provide some points to consider when making your decision on what to do with your house while you travel for an extended period.
What Home Ownership Can Mean
Before we get to the options lets consider what owning a home often means:
- Home ownership is something as adults we are encouraged or even pressured to achieve, often at great expense, and takes considerable effort and hard work to achieve (usually in cooperation with your home loan lender).
- Home ownership is often linked to status, our place in our community and is viewed as a sign of success.
- Home ownership is very often linked to our emotions and psychological needs by providing us with such things as a sense of belonging, emotional and financial security and a sense of our place in the world.
- Our home is also where memories are made and relationships with those dear to us are nurtured.
With all this in mind, thinking about your home, what your home means to you, what it took to achieve owning/buying your home, the memories you have made, is it any wonder making the decision what to do with your home can feel overwhelming? Is it any wonder it can cause conflict between the logical part of your brain and your emotions? Is it such a surprise that one moment one choice can seem right and the next feelings of possible regret messes with your resolve?
Then, as if that’s not enough, there is the added worry that the wrong decision could possibly put your trip and or even your financial future in jeopardy. Being worried about future feelings of regret is very real and valid.
Remembering what I said about there being no right or wrong answer and with the above in mind lets talk about the options.
Option 1: SELL IT
Selling your home is an option. Let’s consider this:
The Potential Benefits of Selling Up
Broadly the main benefit or reasons to consider selling your home is to make a profit or in other words turn your equity into cash so you can:
- Be Mortgage Free: no property means no mortgage to pay.
- Be Debt Free: after paying off the mortgage, the remaining profits could be used to pay off other debts, especially those that would financially hinder your traveling. These debts could include but not only car loans, credit card debt, money owed to utility companies and so on.
- Buy Your Rig or Set Up: very few of us are going to be gifted with the rig or things we want or need to travel. Some of you may already own your rig but there is very likely to be additions or other equipment that you will need. Whatever your needs, selling up is one way of getting the money to pay for it.
- Spending Money: while life on the road can be simpler and often cheaper than living at home, it still requires money. Profits from selling your house could go some or a long way to providing these funds.
- Real Freedom: not having a house to be concerned about or as safety net to return for some provides a real sense of freedom.
The Potential Risks of Selling Up
Selling your home for the purpose of ongoing travel is not without risk. Some of the risks to consider are i) Selling and Breaking Even OR Selling At A Loss and or ii) Loss of Home Ownership.
i) Selling and Breaking Even OR Selling At A Loss
Not all home sales result in a clear ‘profit’. The reality is sometimes there is not sufficient equity to make a profit, in some circumstances a property sale could result in the owner still having a debt to pay. This may not mean that you shouldn’t sell but I would very strongly encourage that you seek professional advice before making the decision to sell in these circumstances if they apply to you.
Selling to break even or at a loss in addition to the financial implications could also have an emotional or psychological impact. There could be those who even in these circumstances feel a sense of relief to no longer have a mortgage. For others it could raise negative feelings of regret and even anger of having worked hard to get ahead financially only to find they are right back where they started or worse.
ii) Loss of Home Ownership
I put loss of home ownership as a ‘risk’ with the risk being after an extended period of time traveling, possibly having had little or no income and having depleted your savings, when it comes time to purchase another property, you could be faced with difficulties being able to afford to get back into the housing market, like not having enough of a deposit to secure finance. It is for you to decide how important it will be that you are able to purchase another property in the future. This will be essential to some and not for others.
What Could Determine if You Will Make a Profit or Not
Some factors to consider when making the decision to sell and whether or not selling will make you a profit are:
- Housing Market: Each housing market is different. Growth in values can vary greatly from area to area with some increasing significantly, some not so much and others actually declining. It is important to have an understanding of the market in your area. If you are not sure then some research on real estate websites could provide some information however the better option would be to obtain free non obligation evaluations from reputable real estate agents and in some cases your bank may be able to provide this information.
- Amount of Equity: With an understanding of what your house is likely to be worth and calculating what you owe from the market price could give a ball park figure of how much equity you have. It is important to remember that this figure is a guestimate and doesn’t take into account fees and costs associated with selling a property.
- Length of Ownership: How long since you purchased your property could have an impact. If you are a recent home owner and the market has not increased significantly or if you bought at a peak in the market when prices were high, may mean you have no or little equity.
Mitigating the Risk of Not Being Able to Reenter the Housing Market in the Future
There are some options you could consider as a means to help increase your odds of reentering the housing market after you travel:
1. Funds for Future Purchase
The idea here (assuming selling your current house makes a profit) is to put aside a proportion of the profits for a deposit to purchase another property in the future. How much you should put aside is something only you can decide. It may help to keep in mind factors such as:
- Your age and how many years you have to work in the future to pay off any future mortgage.
- Most lenders want a 20% deposit plus legal fees to approve a loan without other securities (such as equity in another property) and to avoid mortgage insurance.
- Consider how long it would take you to save a deposit to purchase a property.
2. Purchase a Smaller Property
The idea here is to sell your current house and purchase another which is cheaper, possibly in your desired area so that:
- You would still own a property and therefore still be in the housing market and, assuming you made a substantial profit from the sale of your current property, you could have money to fund your travels.
- Alternatively you would still own a property and be in the housing market but with a significantly smaller debt to manage.
- If the circumstances arose and you would have a home to return to.
These are all well and good however other things to consider are:
- The energy, time and stress of selling and buying properties.
- The costs associated with selling and buying properties including agent fees, bank fees, legal fees, moving fees and so on, how much these will deplete your overall profit or how much these will impact on your final loan amount for the cheaper property.
- Remember you are not going to be living in the new property and rather it will be an investment property. It is important to have an understanding of what to consider when purchasing an investment property and what your role and responsibilities will be as a landlord, so ensure you do your research and get professional advice.
- It is unlikely if your plan is to rent out your now cheaper property, that you will be able to move into until your tenants lease has expired and or you have given adequate notice to vacate which can be 60 days or more in some states.
Option 2: RENT IT
The other mostly considered option is to maintain ownership of your home and leasing it to tenants thus generating a regular rental income. Generally the idea here is that the rent received will provide money to cover the expenses associated with owning a home and maybe provide a regular income towards your travel expenses. The rental options are – a tenancy lease or holiday letting.
Renting on a Tenancy Lease
This option means leasing your property through a tenancy agreement for a set amount each week usually for a period of 6 or 12 months.
Overall the idea and benefits of renting out your home are:
- regular income from the rent you receive to pay the mortgage
- rent received may, after mortgage and other costs associated with a rented property, may provide some income for your travels
Risks and Things to Consider:
Putting tenants in your home has potential risks which may include but not limited too:
- Tenants may not pay their rent or on time regularly but your lender and other services will demand you pay your financial obligations on time. So you may want to consider having adequate funds set aside to ensure you can meet your financial obligations if this issue arises.
- The rent you will receive may not cover all your property expenses meaning you will need to financially manage this shortfall.
- Rent received is income that has to be declared, tax is payable and it may impact on your overall financial circumstances such as in cases where you receive Centrelink benefits. It is essential you understand what it will mean for you financially.
- The period your home is rented out becomes subject to capital gains tax when you sell in the future.
- As a landlord you have an obligation to maintain your property for your tenants. Consider how you would fund a new hot water service if needed, as an example?
- The options are to either rent using a real estate agent or on private lease (meaning there is a direct relationship between you and the tenant). Either way you need to ensure you and the agent or you and the tenant can regularly contact each other as needed. You have to be prepared to address whatever needs arise.
- As an owner of an investment property you have to be organised and keep good records for the purposes of ensuring all your bills are paid on time and for when it comes time to do your tax return (or provide your tax agent with the information to do it on your behalf).
Renting out your property even when all goes well, which can happen, is never completely a ‘set and forget’ scenario so you have to be financially and mentally prepared for this while you travel.
Holiday letting your home to guests at a nightly rate usually for short periods, is an option that can sometimes bring higher returns than leasing long term to tenants. Things consider are:
- If holiday letting in your area is viable and if so what is the likely nightly rate for different seasons across the year and what do occupancy rates look like?
- Are you prepared to ensure your house has adequate furnishings, bed configurations and everything guests will need to stay in your home?
- You will need to decide on an agent that will manage your bookings on your behalf as well as tasks like getting cleaners in and replacing broken or missing items. This can be charged at a rate that equates to as much as 50% of the gross earnings.
- Alternatively you could manage it yourself through a booking site such as an Airbnb or Stayz however you will need to be realistic about what you can and cannot do while traveling. It will be necessary to employ reliable cleaners, to have reliable tradies on call when repairs are needed, you will need to decide a system for entry into the property for guests (there are electronic options) just as a starter. Ensuring adequate communication with each guest, dealing with complaints, potentially having managing issues with neighbours, risk of property damage and so on also need to be considered.
- Are you prepared and disciplined enough to manage financially the inconsistencies in the rental income as occupancy rates change over time?
Higher returns of holiday letting can be very appealing and could be the better option in your circumstances but do your research first. Positive feedback on your holiday let in these days of internet is vitally important when and my experience is feedback often centres on communication, cleanliness and value for money and to achieve excellent feedback in these areas you have to be available to manage anything that arises as they arise which means being available immediately.
Option 3: HOUSE SITTERS
Having someone/s (usually an individual or a couple) stay in your home for free in return for them caring for your property is another option. This may suit you if you have animals, you feel there is more security in having someone in your home and financially you would not require to sell or rent your property to travel.
There are various websites providing a space to match you with house sitters. House sitters can have references and are often travellers too. That said of course it is not without its risks such as the house sitter canceling, being unreliable or causing damage.
Option 4: PROPERTY VACANT
Leaving your house vacant ie with no tenant or house sitter is an option you may consider if returning home regularly is something you will need to do or having the option to return at a moments notice is important to you. The obvious risks I see with this option is that a vacant property may be more prone to theft or damage. That said there is likely to be some basic things that can be done to mitigate this risk to some degree such as having friends or neighbours collect your mail, hiring a gardener to mow your lawns and water your garden, installing a system that turns your lights on at night and so on.
In conclusion, when it comes to deciding what to do with your house there are many factors to consider but only you can ensure you make an informed decision that best meets your needs. Remember it is advisable to seek professional advice from.a financial advisor when making significant financial decisions. And if anyone tells you their opinion was you should or shouldn’t just smile knowingly or tell them to pull their head in.
Happy travels and we hope to see you on the road