So you have decided to hit the road. Whether fulltime or long term, deciding on renting vs selling your house while you travel is one of your biggest decisions before leaving.
Obviously, your home is your biggest asset and it is an important decision but the answer to this question, is not so simple. It is important to consider each property and it’s location, on a case by case scenario.
Everyone is aware it is getting more difficult to enter the property market. In some areas, it is even a challenge meeting the criteria to have a rental application approved, particularly if you have been on the road with no fixed address.
Therefore it stands to reason, that before making a decision you should research what is best for your family.
GFC / COVID – Unexpected Situations
One thing we can all understand and relate to – you cant change things outside of your control. If there is one thing COVID taught us, it is good to have options, good to have a buffer (money behind you for emergencies) and you never know when you are going to have to stop travel or be stagnant for any length of time.
Not necessarily, where it is convenient or affordable to do so, based on your rig.
Being versatile is part of fulltime travel. You will often here us talk about being able to think outside the box. You can not prepare for every situation but being able to think on your feet, having backup in place (either funds or accommodation/house) will dramatically affect your enjoyment or lack of, when shit hits the fan.
Things to consider
There are many factors to consider that can help you to make the right choice for your individual circumstance. The information in this post is from our personal experience, years of owning properties both home and investment. It is our opinion only and intended to be a helpful tool for anyone considering hitting the road fulltime.
For those confronted with the decision of selling or renting out any property they own
before leaving to travel fulltime or long term. Before I forget to tell you –
make sure you check out our 12 month out checklist for hitting the road!
Let me be honest, we are a little bias towards hold/rent it out. We strongly believe in property as a long term investment and therefore want to encourage other fellow travellers to research this important decision well.
So what do you have to consider when deciding over renting vs selling?
LVR or Loan to Value Ratio
In other words, how much is your loan compared to the value of the property. This helps determine how much equity is in the property. If you are unsure research it.
There are various online sites like Realestate.com.au and Domain that make this easier than ever.
In the event you are passed the ‘thinking about it’ stage and heading into the ‘lets do it’ phase, you can ask for a sales appraisal or rental appraisal depending on your chosen path.
We suggest meeting with multiple agents with either decision. It can be difficult to find a good property manager. We are fortunate to have found one who services south east Queensland, but do your research.
How much will your property rent for in the current market
You can do thorough research both online and by dropping into your local real estate offices and picking up their current rental lists, close to where your property is located.
Compare what those properties have to offer tenants compared to yours. How many bedrooms, bathrooms, outdoor areas, pools, air conditioning and of course location to schools, shops and services.
These things can affect the amount of rental return you can expect to receive.
Once you have an idea of what rental the property will achieve, this will help you work out if it will cover your mortgage payments, expenses for the property (ie. insurance, rates, maintenance) and maybe some pocket money for the road!
It’s all about the Numbers renting vs selling your home
There are a few things you can do to work out if you can afford to keep your property and rent it out, and make it more affordable.
When are you leaving? If you have worked solidly for six months from July to December and then leave on your travels this may mean a better tax return. This has the potential to help with any shortfall or costs that arise for a property that needs topping up (to cover repayments).
If you are going to be on the road for a year only, I would argue it is not worth selling an asset that you worked very hard to achieve. Even if you love travelling so much you decide not to return to your house, by having kept the property you have the option of selling it at a later date. Choices.
When you know what the shortfall is you can do the necessary calculations. For example how much you will need to put into the property each week if you keep it. How much is your outgoings (expenses including mortgage, council rates & water, insurances, property management fees) less your incomings (rent). This amount is what you need to contribute each week to be able to afford to hold onto the property.
Your income potential on the road
Keep in mind, we all have skills and the ability to earn whether at home, online or, on the road travelling.
In the event an unexpected expense arises, there is always the option to stop in a location and gain temporary employment.
It is a good idea before leaving, to prepare a resume. Even in basic format while you have access to the information required. Certificates, employment details and records of training, it will be much easier before you are on the road permanently save to file and USB for easy access and email to yourself and store in your travel folder in your email account.
There are many travelling families that have successfully started online businesses while on the road.
Costs involved with renting the house
The most significant costs will be preparing the property for rental.
Pools need to be fenced, gardens clean and tidy and property fencing must be in good repair. Smoke alarm compliance differs state to state but can be costly. You can appoint a Smoke Alarm compliance company, something very helpful in the event of a tenant dispute and more importantly, protection of your asset.
When you find a property manager there will be let fees both originally and when a new tenant is required.
In Queensland, one weeks rent plus GST, check what the fees are in your state. Management fees, statement fees, advertising fees. You get the idea, there are fees associated with renting the property out. Ask for a full disclosure of what is required and how much it will cost from your potential property manager.
Are your appliances or fittings (oven, hot water system, tap fittings, air conditioner) in good condition or need replacing.
Landlords Insurance, protection against damage or non payment in rent. Pricing differs depending on locations, weekly rental and some insurers only offer it if the property is professionally managed.
A quick call to an insurer for a quote will give you an idea. Terri Scheer is a reputable name to consider. Most larger banks offer a landlords policy on top of building insurance policies.
Check what levels of cover are included they can vary greatly. Ask if Window furnishings (curtains), light fittings and carpet but really all floor coverings, are covered. If not, ensure there is adequate cover under the contents section of the policy.
Buffer account, being prepared
We recommend a buffer account for each property is set up. An amount of $5,000 put in each one. This money will ensure no matter where you are if something needs to be repaired or replaced (think oven, air conditioner, plumbers, electricians). If an issue arises, insurance is due or tenants vacate and the property remains empty for a period of time, you are prepared.
By being prepared you can chose where you want to find some work to replenish the buffer account. If there is no buffer, not only will you be stressed but have to take whatever is on offer at whatever rate to scrape by. Not a good way to enjoy your trip and avoidable.
If you can’t afford that amount, that’s fine. Put what you can afford away.
What if interest rates go up
Although interest rates are low at the time of writing this post, they can go up when you least expect it. Expect this to happen before the end of the year 2021.
If you are close to the line of affording or not affording the mortgage repayments less rental income, it may be a good idea to look at fixing the rate in (1, 2 or 3 year fixed rates are common). This will provide some certainty while you are away.
Keep in mind, if you do decide on a fixed term and something goes awry with your plans and you need to sell during the fixed term, there can be additional fees incurred due to breaking the fixed term agreement.
Has the property been well maintained
Especially if you own multiple properties, your own home can be the last one that gets the loving or upgrades! Before being able to rent it out there may be various work and maintenance required to be done to the property, for it to be in a position to be offered for rental.
Also, to achieve the best rental for the property is there any value adding you can do that will attract a higher rental return (ie. air conditioning, carport, fully fenced to allow for pets ect).
How old is your hot water system, size of system, have you got solar the list goes on.
Anything you can do now means a greater chance of not having to deal with maintenance issues arising on the road.
Potential for future growth
Different areas and locations will have different potential for future growth. What is happening in the local area, developments, public transport, hospitals, schools and any other improvements that affect (both good and bad) the value of your property. A good place to start is your local government website which will normally have upcoming changes and developments or planning documents.
Let’s face it, this is the main reason for buying property. Watching it go up over time. Both the property and it’s rental return. It will eventually start working for you, not you working for it.
To see capital gains on a residential property worth commenting about, you would normally plan to hold a property for a minimum of ten years. The longer you hold it the better chance of achieving a better capital gain.
By the time you have factored in entry and exit costs of the property. Cost for buying and selling it. Taken into account the costs involved while holding the asset, improvements, mortgage repayments ect. you may be surprised how much the property owes you.
It is important to understand if you sell the property only part way through this period, you will still have incured the buying and selling costs. But, have not achieved the maximum potential return for that property.
What costs are involved to sell a property
Preparing the property for sale (similar to preparing the property for rental explained above).
Advertising, agents commission, which is different in every state. Conveyancing/Solicitor or Settlement Agent costs, discharge of mortgage registration fees for land titles office. Any break fees of fixed term mortgages. There are others, but this outlines the larger fees that will affect most real estate sales.
If you are a multiple property owner ensure you have taken into consideration any cross collateralisation of lending. This could result in no actual cash in your pocket upon settlement. Just reduction of debt against remaining properties owned by you. Be aware of your current lending and market value of your properties.
Property is bricks and mortar not emotion. Has the property finished doing what you initially set out to achieve when you bought it.
Risk Tolerance
Everyone has a different risk tolerance.
Think about how you handle risk now, while you are employed, in your normal routine.
How will you handle it while on the road. There is no use setting off travelling if you are not going to enjoy yourself due to worry or stress about debt.
Pay down as much debt particularly bad debt before you go to ensure you are not directing any of your income or savings here.
Still want to Sell
We understand the positives of selling. The desire to not have to worry about what is happening with the tenants, worry about repairs and vacancies while on the road.
As long as you have considered all the above and decided it is still best for your personal circumstances (emotionally or mathematically) that’s great.
Also, you may be at retirement age, ready to sell off all your belongings. Ready to keep things simple on the road, in which case this may be the best option.
Whatever you decide to do, Renting vs selling your home, be happy with your decision and enjoy your adventure that awaits, it’s life changing!
If you want some helpful ideas to make fulltime travel more affordable check out our post here.
There is a youtube video of this post available here.
Subscribe before you, See you out there….
You can read more tips and tricks in our Life on the road series
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