If you own a home, whether you are single, married, or married with children, you’ll need to decide what to do with your home while you travel.
If you have a mortgage, it’s unlikely you’ll be able to afford to leave the house empty and pay all of the associated costs. So, you’ll have to decide if you should sell or rent your home while traveling.
As a husband and father, with a wife and two little children, I sorted through a lot of indecision when deciding what we should do with our lovely home when we left on our RV trip across America, which we expected to last at least one year.
I ultimately decided to rent my home instead of sell it.
If you are asking a similar question as you plan for your long term adventure travel, then here are some of the questions that I asked to make that final decision to rent my home.
Do I want to be a landlord?
For me, the answer is an easy one: Yes. I already am a landlord, owning three rental properties. What’s a fourth in the mix?
I know how to find, screen, and secure tenant applicants. I understand leases, my landlord responsibilities, and tenant responsibilities. I also understand the risks with rental properties, and I have the cash reserves to replace a roof, HVAC system, or hot water tank should I need to do so while traveling.
If you’ve never been a landlord, then you should carefully consider this question. Being a landlord isn’t always easy, even with a property manager involved. While a property manager may be the first line of defense, you’re not completely shielded when emergencies occur or tenants default on their obligations.
If you are going to stay awake at night while on your adventure, worrying about the house or awaiting the dreaded call from tenants, then I would encourage you not to pursue the route of renting your home and becoming a landlord. Otherwise, you might ruin your adventure.
Does renting your home make sense financially?
Various factors will influence whether or not it makes financial sense to rent your home. The calculations aren’t complex, and I’ll show you how to make the calculations below.
The basic idea here is that you want to determine whether or not you will be making money, breaking even, or losing money each month by renting your home.
Here’s a look at some of the key variables and calculations needed for a basic financial analysis, and also some sample financial numbers of a theoretical house.
|Theoretical House||Sample Financials|
|Current Property Value (Price for which it would sell)||$127,500.00|
|Accessible Equity ((current property value * .92) – loan balance)||$34,772.00|
|Monthly Rental Income||$925.00|
|Principal and Interest Monthly Payment||$(422.45)|
|Taxes and Insurance Monthly||$(87.16)|
|HOA Monthly Fees||$(50.00)|
|Maintenance (10% of rent)||$(92.50)|
|Vacancy (5% of rent)||$(46.25)|
|Net Income before Taxes (Net Cash Flow)||$226.64|
To determine how much money your home may put into your pocket, you’ll first need to determine how much rent your home will fetch in the market. Don’t think that you can set any rent for your home. Rental rates are very much driven by the market, so you need to do some research here.
Head over to your local Craigslist page and search for homes similar to yours in your area to discover the going rental rates.
Your monthly rent is the gross income you can expect each month, but you will need to deduct various expenses to arrive at net income (i.e. the money that would go into your pocket each month)
These expenses include principal and interest payments, taxes, insurance, and HOA dues, if applicable.
Also, you should create a placeholder for maintenance and vacancy, since both are realities when renting your home.
Set aside 10 percent of monthly rent for repairs and property management, and then 5 percent of monthly rent to account for potential vacancy.
Subtract all of these expenses from the monthly rent, and you will arrive at your net income.
In the example above, the net income is positive, and this homeowner would pocket about $226 per month, making it seem a reasonable choice to rent the home while traveling.
If the net cash flow was close to $0 (break even) or negative, you might reconsider whether the house is worth keeping.
Sometimes, even if the house loses a little bit of money each month, you may still want to rent it. After all, it is home, and many people want to return home after the end of a long-term adventure. You will need to ensure that you build the loss into your adventure travel budget so that it doesn’t unexpectedly deplete your travel kitty.
By finding how much cash your home could bring you or cost you each month, this will help you decide whether it makes sense to rent or sell your home.
Do I need to get access to my home equity to travel?
This was not the case for us, but it may very well be the case for many people. In order to fund their adventure travels, they need to sell their home to turn home equity into cash.
In our example above, the sample homeowner has accumulated $34,772 in accessible equity.
By accessible equity, I mean the amount of money that a homeowner could actually pocket after selling their home.
The equity you have on paper, calculated by the home’s current value minus any loan balances, will not be equivalent to the equity that you can actually access through the sale of a home.
Converting equity into cash often requires costs in the form of real estate agent fees, home repairs, and other fees, which can be equal to about 8% of the sale price.
So, when calculating the accessible equity, multiply the current value of your home (i.e. sale price) by 0.92, which will account for the various costs associated with selling a home.
Thirty-four thousand dollars could go a long way in funding adventure travel, covering probably a year or more of travel, depending on the adventure and lifestyle.
So, if realizing your adventure travel dreams means that you need access to the cash tied up in your home, then selling may be the best choice.
We do not encourage people to take out equity lines of credit, often called HELOCs, in order to gain access to cash.
Traveling with existing, long term debt such as a mortgage is one matter. Going deeper into debt through a line of credit to travel is a different matter entirely, and one we don’t think is wise.
Do you have the cash reserves if the worst were to happen?
Renting a home involves risk, and I believe that risk probably increases if you rent your home and then leave the area.
As a remote property owner and landlord, you will rely heavily on the advice and decisions of people back home, in particular your tenants and property managers.
When you can’t drive by the house to see a problem or issue for yourself, in my judgement you are at a slight disadvantage when trying to make the right decision because you may not be able to gather all the pertinent information.
When something breaks, you trust someone else to tell you what the fix will be and you have to pay them or someone to fix it.
This can get expensive. Replacing HVAC systems or replacing a roof can quickly run into the thousands of dollars.
If your tenants bail out unexpectedly and you have to carry the property for a couple months while you find new tenants, then you’ll need the cash to pay the mortgage and other expenses.
As the property owner, you need probably six months of home expenses in reserve, giving you some cushion to cover mortgages, taxes, and insurance and unexpected repairs while you are traveling.
It would stink tremendously to be out on your adventure, only to return home because a busted air conditioner broke the bank.
Still can’t decide whether to sell or rent your home?
If you are really struggling with the rental decision, then I would suggest selling your home.
Don’t go half-cocked into renting your home, because I imagine it will ruin your adventure travels.
Sell the house and pocket the cash. You don’t even have to spend the money if you don’t want. The money can help you buy another house when you come back or help you transition back into the normal world on your return, if you return.
If you have questions or comments about your decision to buy or sell your home, feel free to leave a comment below.