My friend Andrew published a post: So You Want to Travel The World But You Own a House (Or Apartment) which prompted me to add a comment and I figured I would share and expand on that comment here.
Owning rental property can be a wonderful way to help support your nomad, location independent lifestyle. Rental property can provide a source of regular income to supplement your earnings. Of course, getting a rental property into that state is usually something that takes time, or a huge downpayment.
I have found dealing with property management folks to be extremely annoying. First they charge ludicrous amounts (in my opinion), especially for places that have high rents (they normally charge a % of rent + huge amount to rent the place out). These costs greatly reduce the investment appeal of renting out your property. On top of paying them a huge amount they are not very customer focused (to me paying them, or to those seeking to find a place to live).
15 years ago I started renting out my first house and obviously created a web page for it. Nearly none of the expensive professionals did that back then. Only years later they finally were dragged into catching up. And still today, they post not nearly enough useful information.
Still it can be that even with these costs and frustration it makes sense as an investment (especially in the last few years when investment climate is so challenging).
Often the decision to rent out your home (versus selling it when you leave) is impacted by your long range plans. If you want to move back into your house in a year or two or five that limits your options. You may have to accept a bad investment to keep that option open. Especially if you are just going to go give the nomad idea a try for a year, selling may not be wise (unless you don’t want to return to your house even if the nomad idea doesn’t appeal to you once you try it).
Another consideration, even if you don’t care about moving back into the same house, but plan on moving back to the same city, is that if you sell and real estate values climb you could find yourself priced out of the market.
Another way you can be blocked from buying a house again is if your nomad income is low, then when you try to get a mortgage on your return you may find yourself blocked by banking formulas for how risky they think you are to loan to (especially if you are gone for longer periods of time – say over 2 years).
This may be less of an issue elsewhere but in the USA I would worry about it. It may be other countries are more used to people working overseas and doing “weird” stuff like taking a gap year in the middle of a career so they don’t freak out as much as I would guess most USA banks would. If you worked for some huge company overseas the USA bank would probably be fine, but other stuff they may question.
So it might mean you want to hold onto your house not because it will be a great investment but because it is the safest way to assure you have a home to move back into. If you are fine renting when you return then this isn’t a big consideration.
I am actually flying back to the USA in a few months after finally having enough with the property managers and trying to rent out my house. I am going to move back in and likely sell it before moving back out. I really like the house and my long term vision was to keep it with the possibility of moving back in.
But it also is in a very high cost of living area and making that work financially was not going to be easy. My visions has become to possibly move back to the USA in a lower cost area and continue my current work. Or perhaps continue as a nomad. My longer term plans have more focused on when I return to the USA not living in such a high cost area.
Still I really like that house and if it would perform even decently as a rental I am tempted to keep it. Maybe I will strike it rich and could move back in, without getting chained to a desk to pay for it. But I think those odds are too low and selling it is likely the way to go.
But I will have some time to decide when I return and I’ll get to live there a bit while trying to sell it. I can sit on my deck and enjoy the back yard while I figure out what to do next.
The cash flow from a rental property is one consideration. Even if there is a good cash flow when rented out you still have the risks: vacancies; expenses you must cover (new roof, new hot water heater, new stove…; and tenants failing to pay or damaging the property.
Real estate also has the potential for capital gains or capital losses depending on the market. This is the biggest risk I have in selling is I would wager the price for this house will be a lot higher 20 years from now than it is today. From a cash flow perspective though it isn’t a very good prospect right now, though.
Real estate can be a very helpful way to build capital and create a positive cash flow in the right circumstances. But it also is something that can create huge headaches and costs if things don’t go well.
With this house I think it will be a very good long term investment. The hassle of dealing with property managers is something I really want to reduce, so I am willing to sacrifice a good investment to accomplish this. But if the investment potential were great enough I would put up with the property manager hassles. This house, as an investment also is weighted toward a long term capital appreciation payoff (in my opinion) more than a cash flow payoff every year.
My current situation is such that I could really use a reliable contribution to cash flow today (even at the expense of a larger gain over the long term). Those factors push me to believe I will sell, though I also look forward to living in it for a bit while I decide. Unfortunately living there will be very costly compared to what I have been doing the last few years so that is another factor that will influence how long I stay.
Also there are lots of annoying realities I have to face. I have no car, I have very little furniture… Staying for a couple months I could do in a spartan way (even then I have to get a bed etc.). But if I want to stay longer I probably will be better off making some significant purchases, further raising the cost of living there. So I really am not at all settled on what I will do. Hopefully in the next month or so I will get a good feel for a plan for going forward.
Based on a risk I mentioned above I may buy a place in the USA that I want to live in for the long term before I go back out as a nomad. I might want to lock in a house to move back into (and avoid the risk of finding myself priced out of where I want to move back to when I return). If I did this, I may just accept that it is a lousy investment (where I have a negative cash flow each month) but where I am buying it not as an investment but as an assurance that I can afford to move back to where I want to live when I am ready.
Related: Housing Savings by Living as a Nomad – Looking for Yields in Stocks and Real Estate (2012) – Looking at Real Estate in This Challenging Investing Climate – Real Estate Tax Compared to Rental Income in Several Cities in the USA – Home Values and Rental Rates (2008)
If I sell the house and want to invest for income I will put together a portfolio of investments including: Real Estate Investment Trusts (REITs), dividend aristocrats, Master Limited Partnerships MLPs (oil and gas pipelines), dividend growth stocks and a portfolio of person to person loans via Lending Club. Doing this sensibly I believe takes a fair amount of investing experience. I am comfortable doing it but I think it would be risk for most investors to do this sensibly (it would be easy to make very costly mistakes).