Last updated on 5 August, 2023
Preparing to do a lap of Australia or travel indefinitely is exciting. As a homeowner, before you set out on the road, you must decide what to do with your home. So, is it better to sell or rent your house to travel?
Deciding what to do with your home feels like and is a big decision. It can have long term consequences, so it is a decision you want to get right for you.
Let us be clear; 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). The decision to sell or rent the family home is choosing how to fund travel in Australia.
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- Sell or Rent Your House to Travel
- Option 1 | Sell
- Option 2 | Rent
- Option 3 | House Sitting
- Option 4 | Leave Property Vacant
- Sell or Rent Your House to Travel? What Did We Do?
- Recent Posts
Sell or Rent Your House to Travel
What should you do with your home when you travel? Let’s consider the options.
Option 1 | Sell
Selling your home is an option. Let’s consider this.
The Potential Benefits of Selling Up
The main benefit or reason to sell your home is to make a profit, that is, 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 pay off other debts, especially those that would financially hinder your travelling. These debts could include car loans, credit card debt and so on.
- Buy Your Rig or Set Up: the money you make off the sale, could go towards buying or improving your travel rig or set.
- Spending Money: the profits from selling your house could go some or a long way to providing the funds you need to travel.
- Real Freedom: not having a house to be concerned about or as a safety net to return for some provides a real sense of freedom.
The Potential Disadvantages of Selling
Selling your home for ongoing travel is not without its potential disadvantages:
Selling and Breaking Even OR Selling At A Loss
Not all home sales result in a profit. There is not always enough equity to make a profit. I strongly encourage you to seek professional advice before deciding to sell if this could be you.
Selling your house and breaking even or at a loss, in addition, to the financial implications, could also have an emotional or psychological impact. For some, there could be a sense of relief. For others, it could raise negative feelings of regret and even anger.
Loss of Home Ownership
The loss of home ownership is a potential disadvantage. The risk is not being able to afford to get back into the housing market or ability to meet lending criteria such as long term steady employment. It is for you to decide how important it will be that you can purchase another property in the future.
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 from area to area. Do your research using real estate websites or obtain free non obligation evaluations from reputable real estate agents or your bank may be able to provide this information.
- Amount of Equity: Knowing how much equity you have (value – debt still outstanding) could go a long way to helping you make your decision.
Re-entering the Housing Market in the Future
There are options to consider to help increase your odds of reentering the housing market after you travel:
Funds for Future Purchase
Something to consider is, saving all or some of the profits for a future property purchase. How much 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 avoid mortgage insurance.
- Consider how long it would take to save a deposit to purchase a property.
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 property, be in the housing market and possibly 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, you would still have a home.
These are all well and good. The other things to consider are:
- The energy, time and stress of selling and buying property
- The costs associated with selling and buying property
- Whether or not you want to become a landlord and rent out your smaller property
Option 2 | Rent
Another option is to maintain ownership of your home and lease it generating a regular rental income.
Long Term Tenancy
Leasing your property through a tenancy agreement for a set amount each week is a viable option for travellers.
Overall benefits of renting out your home are:
- regular income from the rent you receive to pay the mortgage and other expenses associated with owning a home (eg. rates, insurances)
- rent received may, after mortgage and other costs, provide some funds for your travelling
Risks to Consider:
Putting tenants in your home has potential risks, which may include but are not limited to:
- Tenants may not pay their rent regularly on time and you will still need to meet your financial obligations associated with home ownership. So you may want to consider having 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.
- Rent received is income that has to be declared. Tax is payable on rental income and will impact Centrelink payments.
- As a landlord, you must maintain your property for your tenants. Consider how you would fund a new hot water service if needed, as an example?
You also need to decide:
- Are you going to employ the services of a real estate agent or manage the property yourself? Either way, your agent or tenant and yourself need to be able to communicate 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 to ensure all your bills are paid on time and for tax time.
Renting out your property even when all goes well, which often it does, is never 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 for short periods is an option that can bring high returns, particularly in high tourist areas.
Expenses are also very likely to be high. Things to consider are:
- If holiday letting in your area is viable, what is the likely nightly rate and what are the occupancy rates?
- Are you prepared to ensure your house has adequate furnishings, bed configurations and everything guests need to stay in your home?
- You will need to put in systems and supports to manage your bookings and tasks like cleaning, check in and out, replacing broken or missing items and repairs.
- Are you prepared and disciplined enough to manage the financial 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.
The Good News: Principal Residence Capital Gains Exception
Capital gains is a tax paid on an investment property.
A tax rule allows an exemption on the capital gains tax when the property rented is your primary residence, even if you are not living in it. You can rent your family home for up to six years and not pay capital gains.
A summary of the rules is:
- The house was your principal residence when purchased,
- Your home remains your principal residence, meaning you cannot buy other property and live in it.
Option 3 | House Sitting
Having someone/s stay in your home for free in return for them caring for your property and pets is another option.
Various websites are providing a space to match you with house sitters. House sitters can often provide references and are often travellers themselves. That said, of course, it is not without its risks, such as the house sitter cancelling, being unreliable or causing damage.
Option 4 | Leave Property Vacant
Leaving your house vacant without a no tenant or house sitter is an option. The risk with this option is that a vacant property may be more prone to theft or damage. An advantage of this option is that you can return home anytime without considering house sitters, tenants or holiday guests.
Sell or Rent Your House to Travel? What Did We Do?
Rent. Our home, is leased with long term tenants.
The reasons for our decision are:
The six year capital gains exemption,
The rental income is sufficient to pay the mortgage and the other relevant expenses,
Being landlords is not new to us and we understand the rules and responsibilities to tenants, the risks and the rewards (income, tax implications) and are comfortable with these,
We wanted to stay in the Sydney property market,
We are in our 40s and fund our travelling by working,
We do not want struggle to get a home loan in the future, and
We were able to save for our travels.
Our home is in an area where growth is strong. We have been glad we have not sold. The value of our home has increased significantly and while we never want to live in Sydney again, we will have more money to put toward another purchase in the future.
Note this is a basic summary as to why keeping our home and renting it was the decision we made for us. Whatever decision you make has to be what suits you and your circumstances.
It is advisable to seek professional advice from a financial advisor when making significant financial decisions. And if anyone tells you their opinion, smile knowingly and go ahead and make your own decisions.
Before starting our life on the road, we were homeowners with a mortgage. We had purchased our home as a “renovators delight” a little over ten years ago and had completed renovations.