Rent or Sell? The Optimal Decision for Homeowners Turned Vagabonds

| October 5, 2009 | 57 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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