Rent or Sell? The Optimal Decision for Homeowners Turned Vagabonds | Two Go Round-The-World

Rent or Sell? The Optimal Decision for Homeowners Turned Vagabonds

| October 5, 2009 | 24 Comments
houseforsale Rent or Sell? The Optimal Decision for Homeowners Turned Vagabonds

Can the life of a vagabond be reconciled with that of a homeowner?

Can the life of a vagabond be reconciled with that of a homeowner? Even a consummate vagabond like the “good gray poet” Walt Whitman was himself a homeowner, owning just one residence in his lifetime—a two-story frame house he purchased in 1884 for US$1,750, (located in Camden, New Jersey). While it’s impossible to view Whitman apart from his life as a vagabond, he accepted at any rate the recognized conventions of home ownership.

Beyond the scope of this article is the age-old question: Am I better off renting or buying a house? Although we are homeowners, we’re still not sure. Home ownership, like everything else, is a matter of personal choice. People born in the 1960s or earlier had the idea of home ownership drilled into them, ie to be a real person you had to own your home. Today, that’s not necessarily true. We bought. It was the right move at the right time—as far as we were concerned.

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This post was written for the homeowner currently faced with the prospect of long-term travel and presently struggling with the decision to rent or to sell—or those looking for other alternatives. We’re currently consideration all of our options. And while we haven’t yet reached a decision, it’s certainly raised a lot of questions. That being said, we’re unlikely at this time to sell. We believe that the short-term cost of renting out our primary residence, or even leaving it unrented for six months or a year, might pay off in the end. What we mean here is that the cost of selling or renting a house may not be simply monetary. But there will be a costs—time, worry, and hassle. These can have financial impacts further down the line, too. The home we bought just a few years ago has sizeably appreciated (we’ve been lucky through this downturn owing to the fact that we live in a desirable area). Selling now will lock in some good gains and free us to travel; however, we could be priced out of the market upon our return.

Here are some important factors that are worthy of consideration:

  • Do you have adequate funds? Are all options open to you? Can your cash flow sustain renting, selling or leaving your home vacant?
  • How will your choice will affect your cash position?
  • How willing and able you are to manage a rental property?

When it comes to balancing the pros and cons of renting, selling or leaving your home vacant—one guiding principle remains true. You can rarely realize both cost savings and a high level of security—without paying for it. The premium is lowered, of course, if you sacrifice one for the other.

Whatever your motivation, it’s important to have a healthy grasp of the financial issues at play when weighing this decision. While we don’t provide a comprehensive list, here are some things you need to consider.

Costs associated with selling

Selling your home can be an expensive proposition, if you list your home with a realtor, expect to pay 4–6% of the home’s sale price. Transfer taxes, property taxes and legal fees associated with the closing of the sale will comprise ~2–4% of your sale price. Furthermore, the remaining principal balance on your current mortgage will have to be paid down upon closing. Hence, if there’s a prepayment penalty, you’ll need to deduct that from your sale price. Even with these simple back-of-the envelope calculations, you can see how the costs of selling a home can quickly mount.

Costs associated with renting

Consider the total cost of maintaining your place while you are abroad. This includes mortgage payments, utilities, maintenance, yard work, repairs and any professional services you might require—these could potentially include property management, accounting help and lawyer fees. If, like us, you’re considering renting out your primary residence, you’ll also have to decide whether to rent it furnished or unfurnished. If you leave furniture, be prepared for it to be damaged or, at the minimum, show some wear. If you are planning to rent it unfurnished, you’ll have to consider the costs of a paid storage facility.

Cost of leaving a home vacant

While we had initially dismissed the idea as unfeasible, we’re quickly warming up to the idea of neither selling nor renting. While the costs of leaving a home vacant aren’t negligible, there are many benefits to consider. You can avoid the expenses related to selling and the complications arising from renting. Furthermore, in a low interest-rate environment holding onto a house is a decent way to build wealth. Low mortgage rates mean that paying off your mortgage is a guaranteed, risk-free return. Of course, you can invest in safer investments like bonds and dividend paying stocks, but rarely will you earn a higher return on these types of investments than the interest rate you pay on your mortgage.

Of course, there is some downside to consider. For instance, an unattended home is a prime target for burglars or vandals and most household insurance policies offer only limited coverage if your home is not checked regularly while you are away. Luckily, there are a number of property management services that can help.

Consider hiring a management company

Regardless of whether you decide to rent or to sell, when you add up the responsibilities, there’s much to be said for hiring a professional. Going this route will cost you about 8–10% of the rent you collect (or the mortgage you pay). Depending on your agreement with your property manager, they could take care of everything related to the property—from putting it on the market and screening your tenants to collecting rent, maintaining the property and even taking care of your mortgage.

Conclusion

Although we are still weighing the benefits of home ownership, we are concerned with the prospect of selling our house outright. For example, if were to sell the house, we would be unable to refinance or borrow against the equity of our old home for the purchase of a new one. Moreover, securing a mortgage might prove difficult owing to the unemployment (or underemployment) brought on by travelling. As we intend to return to the same area in the future, we face the risk of being priced out of the market if we were to sell.

It would therefore make sense to rent our home. At the same time, we’re concerned with the upkeep of the property, the screening of prospective tenants and moving our belongings into storage. Weighing the total expected costs against the total expected benefits of each of these decisions, we’re warming up to the idea of finding somebody to stay at our house and to take care of everything while we’re gone. The challenge, however, is finding somebody we can trust. Friends? Perhaps, but we feel uncomfortable asking our friends to shoulder such a burden. Relatives? Possibly, but that option might not be available to us. We’re also considering the myriad number of options online that have sprung up in recognition of the need to provide services where homeowners can locate a reliable housesitter.

At issue of course, is how our choice will affect our cash position while travelling. We’ll approach the cost of carrying our residence as an incremental loss while we are away. Bottom line, we’ll likely consider such an incremental loss as simply an additional cost of a unique trip. Of course, as always—we’re open to suggestions!


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About the Author ()

For nearly ten years now, Daniel of Two Go Round-The-World has explored how travel captures our imagination and engages our deepest emotions. One half of the duo that maintains the widely read Two Go Round-The-World blog, Daniel treats his subjects not only as works of art but also as symbols of the cultural and political forces that inspire them. Check him out on Google+.

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  1. Traveling long term? Rent or Sell? « Really Home blog | September 3, 2012
  1. JoAnna says:


    I think that if we ever go traipsing around the world, we’ll probably keep our house in the U.S. as a home base. We may find a house sitter, but it will be nice to have a place to come “back” to should we ever decide to do that.


  2. That’s a really hard question to answer. I think it will come down to your own priority. Someone might think having their own home is their top priority. But others might think having freedom to be able to move around is their priority.

    With that being said, selling a home right now might prove to be very difficult (at least in my local market). So it will also depend on where you live.

    Sorry, if this doesn’t really give you much advice or suggestion. I think your post already covers all points you have to consider. :) I think at the end, there is no right or wrong answer. It will be your personal choice of what you feel comfortable with.

  3. Shannon OD says:


    I agree with Amy, the market right now might just dictate your decision. You certainly aren’t going to get the highest possible value out of the house if you sell now. But at the same time, it will definitely be an additional stresser to have to manage and keep track of renting it out while you’re traveling.

    Since you’re going for a year, I say it would likely be better for you to keep it and rent it out then go through the whole sale process only to turn around and face it again right when you get back. :-)

  4. mina says:


    This was such a difficult decision for us. Renting seemed like it could be a lucrative possibility. However, after speaking to several property management companies, we realized that there are many downsides to renting and depending on the type of tenants that you get it could become more of a burden than an investment. Even a ‘perfect’ tenant can become a nightmare due to divorce, job loss etc… If you are not in the same city and need to hire a property manager it would need to be someone you could really trust and have a good professional working relationship with. Alex & I felt that our travels could be more carefree and relaxed if we didn’t have to worry about the responsibilities that come with home-ownership. The reduced interest we will earn on the money in the bank as opposed to an appreciating real estate asset was a major consideration but I don’t think we’ll regret our decision. Hope that helps!

  5. morriswt says:


    Dan,
    Interesting post…
    Let me first say that I do not own a house and will not own a house in the very near future. I actually considered buying a house to take advantage of a tax credit in the US but ended up deciding not to buy a property.

    I’d be interested in what you consider maintenance costs. I’d say take that number and multiply it by at least 1.5 or 2. Alot of unexpected things can happen to a house. Additionally, even if your house sits empty, you still need to maintain it for it to keep its value.

    Sounds like you are lucky to have a property and not be upside down on the loan. I’d personally consider selling it. I would not consider doing long term travel while owning a property no matter how much I trusted the tenants or property management company or whatever arrangement I could setup.


  6. I am going through this exact debate now. I have a house in Japan and my wife and I are uncertain what to do with it.

    Selling doesn’t seem to make much sense because we wouldn’t get much for it with the slow appreciation in Japan.

    Mortgage rates are less than 2% so a high percentage of our payments are going towards paying off the principal. That makes it a decent long term investment

    Renting out in Japan is probably a lot less risky than other countries, but we are not sure if we need to have a home base or not. It sure would be nice to have a comfortable place to return to, but we are not sure if it is worth the expense at this time.

    Maybe we should house swap? Are you interested in coming to Japan for a couple of months? It would be great to swap houses with a small group of nomadic people around the world that we could trust.


  7. This is indeed, a very critical decision and I wrote about it in a post about how to do extended travel:

    http://soultravelers3.com/2008/06/how-to-do-exten.html

    “Housing tends to go in cycles. Look closely to see if the trend is going up or down. If the trend is at the beginning of a downward spiral or at the peak after a long booming market as it was for us, it is far wiser to sell when it is easiest to do it and at the best price. We know other around-the-world families who missed this and some are still having a hard time selling at a much lower price. If the trend is at the beginning of a major upswing, after being down for a long time, it is often wiser to rent out one’s house.”

    I’m not sure where you live, but I think everyone must re-frame/re-think their false assumption that “homes always go up” or that owning a home is an investment.

    If you do not own your home..ie paid in full…it is a liability, NOT an asset. You are renting it really from a bank.

    Everyone should read Yale prof Schiller’s post & chart on what housing has done in the last 100 years to get a more accurate assessment.NYT has more info on it tracing it even much further back in the Netherlands.

    I personally do not think it is a good time to own a home & we are so very happy that we sold ours in 2005, at the top of the market, before we left on our open ended world tour. Many thought we were crazy to do it, but time has proven it to be a wise choice.

    Of course, if you are sure you are only traveling for a year,that will impact your choice. Might you add on time? The travel lifestyle will change you mightily & that will also impact.

    We were very attached to our dream home that we put a ton of work into, but have not missed it at all & not having to worry about it has given us much more freedom in our travels.

    Recently I posted a good article on twitter showing that housing will continue to fall in many areas for 25/30 years!

    You might also want to read some of the links I left in one of my first posts in 2006 on our blog, called “Timing is Everything”.

    If you think out of the box for travel, remember to do it in other areas.

    HTH Good luck!

  8. Jen Laceda says:


    This is a tricky one. I guess, you’ll get more of a sense when it’s closer to 2011? I mean, timing is certainly not everything, but it is a big chunk of the pie. Let me know what decision you come to. Also, maybe keep at the back of your mind, that many people set out to travel for a year…and decide not to return to their home / live somewhere else in the world. Could you see this happening to you? Maybe that beach bungalow in Bali, or that stone cottage in Umbria, or a cattle ranch outside of Buenos Aires is calling…just teasing!!

  9. Lindsey says:


    My husband and I are going through the same thing. The economy is depressing, but we’re determined not to let a piece of real estate slow us down. We’re in the process of budgeting for an around the world trip, and it looks like we are going to rent our place out. Since the economy is so bad, we have to make even the rental price appealing.

    We are budgeting for our trip using worst case scenarios. In order to pay for the mortgage, property tax, Homeowner’s Association fees, homeowner’s insurance, and a small amount of extra money that can be used for maintenance…we will need about $1,000 per month. If we can get our place to be rented for $650, we will need to dedicate $350 to offset the extra costs. $650 is a pretty safe renal rate as places comparable to ours are renting for more like $750 – $800. Therefore, the higher we can rent our property for, the better off we will be. In addition, we intend to offer a furnished rate if the renter wants to take it. I think it would be a small fee…perhaps $50-$60 each month. We’re hoping someone takes this offer because it will prevent us from getting a huge storage unit, which would cost more money.

    All in all, we hope this works. I enjoyed this post. This is the first time I’ve been to your site. I think I’ll give you guys some linkage!

  10. Neil says:


    If you meet the following 3 criteria, I renting out the house is undoubtedly the right choice:
    1 – You continue to believe that owning is better than renting…you don’t want to become a renter after your return.
    2 – You are intending to resettle in the same town or city after your trip.
    3 – You are happy with your current home.

    Unless “long term” means more than two years, you’ll likely find that the transaction costs of selling and rebuying a home in the same area exceed the savings realised by selling in the house for the trip. But if you want to move, it’s as good a time as any.

    There is of course, the 4th criteria – you can take your trip without tapping into your home equity (or tapping more than you’re willing to tap as a loan).

    My wife sold her condo before we did our big trip (this was before we were married, and I was not a homeowner at the time). It was the only way we could both go, but in retrospect it probably cost about $60 or $80k as the housing market exploded during the time we were gone, and during they year we spent saving up our down payment. I don’t regret it, as the trip was an amazing experience, at the right time, and worth every penny including the housing loss.

    But if I could do a trip without selling my home, that would definitely be my preference.

  11. Johnny says:


    It’s so hard nowadays because selling in this economy is not an option yet keeping up the mortgage payments is a disaster without renting.

  12. carmel says:


    House prices have plummeted here I am putting off any travel until I can get a decent rent for my house.

  13. Tango Lucy says:


    Its interesting because many people are choosing to rent instead of sell in this economy, and that is driving down the rental rates! Also more people are downsizing and living together with roommates, so this is also adding to the vacancies in the market, especially one bedrooms. If you are planning on renting, keep in mind that you may have to accept less than what you originally thought you could get, and it may take longer than usual to find a tenant. At least these are my experiences in Los Angeles.

  14. Ben says:


    I’m so glad that rental rates are coming down. Renting out your home is hard. Unless you find close friends or relatives to rent to, I wouldn’t do it. People trash your place.

    • Daniel says:


      Agreed, Ben. If we were to rent, that is one of the reasons why we would consider a property management company, one which might periodically perform inspections of the house, both inside and outside. This ensures that your property is being properly cared for and that the tenants are adhering to the terms of the lease.

  15. KewlGadget says:


    It seems that the economy is having a bigger impact on this situation than any. It seems that this is totally a buyers market at the time, so your asking price would have to be decreased, but usually when that happens it makes it easier to seel. I am hearing that it is the worst of both worlds. You have to drop your price to get a bite, but cannot sell because the general consumer has a very weakened buying power. Maybe the answer is to rent until the economy comes back a little.


  16. Depends how free you want to be. If you truly want to leave and never have to come back unless you want to and want the option of staying away as long as you wish with no worries. Sell it.

    If you aren’t quite ready to let everything go, keep it. Flip side is, imagine being on a beach in Bali and having some BS go wrong with your house, or tenants you need to evict or … etc etc…

    Another thing is, if I decide to live somewhere when I get there, I can do it, no worries no attachment.

    For me the decision was simple, sold it along with all the furniture, no regrets.

  17. Bethany says:


    This is a great post. Strangely I am struggling with the opposite problem. I’m about to go traveling and after years of saving and getting ready for my non-committal, free spirit travel life I am seriously considering buying a house now. Really it’s because of all the reasons you noted above – the market is great, I can get an 8k IRS tax refund for buying before April and the market is great now. If I wait until after I travel it will be hard to qualify because of income and all my saved money will be spent and I won’t get a refund. It’s so tough being on the brink of 2 such huge life changing things! Anyway I’ve been nosing around your blog and it’s great. I found it through theplanetd.com and I’m going to add you to my blog roll. Good luck with the savings! – Beth

  18. Abigail says:


    Had exactly this debate with my husband before we went round the world in 2008. In the end, we decided to rent the house out, but we were realistic – we didn’t expect any income once we’d paid a managing agent and covered the mortgage, we just wanted to keep the house. A tip I was given by someone who owns several rental properties – budget for rental income 10 months out of every 12. If you can cover all your costs with 10 months’ rent a year, it’s feasible. If you do keep a tenant for 12 months or more, you have extra cash for maintenance etc.

    We returned to the UK in January 2008, but we chose to keep our house rented out and rented an apartment for us instead. It’s cheaper and, after living out of a rucksack for a year, it felt spacious enough! I doubt we’ll ever live in our house again – we’re heading off again in April this year – but we know it’s there for capital or a roof over our heads if we need it in years to come. And meantime, someone else is paying our mortgage – hurrah!


  19. On the flip side of renting or selling your stuff (including housing), there’s also the issue of what you rent versus buy for, or during, your trip…

    There are certainly some things that make sense to rent while travelling (a car, for example, assuming you will not be using one extensively – in that case, consider buying one). However, some things you simply dont leave to chance that you are getting what you need, and that is safe and sound.

    I do know people who have travelled with small children and rented items along the way, like strollers and high-chairs, booster seats, things of that nature. Just keep in mind, especially when travelling to less developed countries, that their standards (and frankly, the level of honesty with regard to giving you what they say they are) can be very different.

    Items that are key to yours and your chilren’s safety really need to be investigated carefully. In some countries, you will not be required to have an infant car seat, but that doesnt mean you shouldn’t. Also, note that the standards by which car seats (and other safety items) are judged can be much less rigorous than in N. America…

    If you do plan on spending a significant amount of time behind the wheel while travelling, make sure you research the standards/ratings required in the country you’re travelling too. Personally, if I’m travelling to a less developed country with my children and plan on driving, I’m either bringing my car seat(s) with me, or I’m doing some major research to buy a good one whilst there. It DOES suck lugging around a car seat, but, then again, buying a new one while travelling (and not be confident of its quality/safety), sucks a lot more!

    If you can manage it, just bring yours with you (of course, that assumes you like and trust the one you have)! If you’re not sure the one you have now is what you need, then take the time and research and buy a new one BEFORE YOU GO. It will make your travels less stressful, and will be something you can use with confidence when you return!

    Good luck and safe travels!!!
    Carrick

  20. Josh says:


    Being priced out of the market is a reality for renters, not just buyers, in major cities. I was tempted to hold onto my apartment in NYC because I’m sure the rental market will have gone up exponentially when I return. Ultimately, I decided that the hassle of subletting wasn’t worth the effort.

  21. Mary says:


    How do we find opportunities? We want to stay in Toronto against the trend when Snowbirds go south for just shy of 6 months and are willing to pay for the covering cost i.e taxes for that peirod and and utilities and house sit for those TO folks. Can have a cat or a dog to care for. We want to sell our house in Toronto, buy a lakefront down where we grew up SW ontario and call that our primary dwelling and stay there when we aren’t housesitting in TO. Reason: medical facilities for a health condition of my 59 year old husband. not messy, just need to get treatments every so often and we want to keep our TO health care professionals.


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