Housing situations have caused even ardent around the world trip planners to never leave. The best-case pre-trip housing scenario is living with your parents—pack your bags and go. If you aren’t living with your parents, you should consider moving back in a few months prior to your departure.
RENTING
If you are renting, coincide your departure date with the end of your lease. This shouldn’t require much coordination or effort. It will take over a year to save adequate funds and once you are less than a year away from departure, there’s no reason to extend the lease another year. Many leases include an initial one to two-year rental period and after that period has elapsed, the lease because a month-to-month rental agreement. If you are on a month-to-month lease, give your landlord a month or two notice before moving out. There will be language in the lease that the landlord will hold onto a portion of your security deposit for any notification less than that period. The security deposit likely covers a month of travel and would be a nice cash bonus prior to leaving.
If the decision to travel is an impulse decision (or you are laid off from work), calculate the cost of immediately leaving versus the cost of not receiving your security deposit. For example, if you are ready to leave and you have three months or more remaining on a $2,000/month lease with a $2,000 security deposit, you may be able to rationalize not receiving the $2,000 security deposit back because you’d be saving $6,000 on rent, although that’s only the first part of the financial calculation. If you decide to leave before the end of your lease, you will also be responsible for the future remaining monthly payments until a successor tenant signs a lease and moves in—using the same three month scenario, that means you would be responsible for $6,000 of rent. Don’t assume a friend or someone else can move in and assume your lease. Most landlords and apartment rental agreements will not let you sublet or transfer your lease without forgoing your security deposit. The landlord may not have much incentive to actively find a new tenant, so it behooves you to reach out to your landlord and assist with finding a new tenant to help expedite the leasing process. After performing various calculations, I think you will find waiting to start an around the world trip until your lease ends is the best approach.
HOME OWNERSHIP
No book or blog will help you decide what to do with your house during your travels. This is a difficult and personal decision. This isn’t similar advice as telling someone to pack their favorite brand of razors. The only person with true insight into your personal finances and long-term housing plans, is you.
First, do not count any proceeds from the sale of your house as savings for an around the world trip. There are scenarios in which the sale of the house would cover multiple years of travel but I look at selling the house to pay for the trip the same as cutting your 401(k) contributions—you are spending money that could otherwise be earning you money and that’s poor financial planning over the long term. With the mindset that a house can generate income, the “sell or keep” analysis is simple—rent your home. I could, and others have, write a book on the benefits of renting real estate. The only analysis that needs to be performed on this strategy is determining if the rental payments will cover your mortgage. In several markets, and depending upon how long you’ve owned your house, the rental payments should exceed your monthly mortgage, insurance, and tax payments. If that’s the case, rent your house.
If the rent you’d receive doesn’t exceed your monthly payment, you have a more complicated calculation and decision. You need to calculate the difference between the rental income and your mortgage payment and multiply that amount by the number of months you are traveling to determine the total cash out. If you have a $2,000-a-month mortgage on a house that would rent for $1,500, you’ll need to save an extra $6,000 for the trip to cover the mortgage shortfall.
If you purchased your house at the peak of a real estate cycle and will take a real cash loss selling the home, don’t sell. If you bought your house at the bottom of a real estate cycle when prices and interest rates were low, you’d be even crazier to sell your house. If your loan’s interest rate is below 5%, never, ever, sell the property, whether you are taking an around the world trip or not.
If you decide to rent your house, you need to determine whether to do the legwork of finding and vetting a tenant yourself or relying on a property management agency. The property management agency handles all aspects of the rental process from finding a tenant, to collecting monthly rent, to replacing your microwave. They handle basic maintenance and can schedule a heater check in the fall and an air conditioner check in the spring. The costs of these agencies range from 5%-10% a month or a flat fee, such as first and last month’s rent.
The final factor to consider when renting your house is if you can find a tenant with a lease term that will match your travel schedule. Consider yourself lucky if you find someone who wants a one-year rental. Many renters look for longer-term leases because it’s a hassle and expensive to move every year. When you return what do you do? Rent? Move in with your parents? It may be 3 to 4 years before you can move back into your house (don’t assume that because your hypothetical lease goes month-to-month after a year that you will be able to vacate your tenant—rental laws are on the tenant’s side.)
My final push on why renting your home is a good idea—travel may change your financial mindset. Running your travels is like running your own business. You may begin to feel the entrepreneurial spirit while you trek through the Himalayas or motorbike through Southeast Asia. When you return and maintain that entrepreneurial spirit, you’ll wish you had a property to rent. You’ll know the true way to wealth isn’t through savings—saving 15% of every paycheck won’t make you wealthy. To become wealthy, you need other people to give you money. Owning a rental property is one of the easiest ways for someone else to give you money.
My long-term financial plans are to use former primary residences as rental properties and use the monthly rental income to fund overseas living in my retirement years. While financial markets go up and down, a rental property should provide a steady stream of fixed income. Thirty years from now I won’t have a mortgage. If I receive $2,500 a month in rent, my monthly international living expenses are covered.
If you are renting, coincide your departure date with the end of your lease. This shouldn’t require much coordination or effort. It will take over a year to save adequate funds and once you are less than a year away from departure, there’s no reason to extend the lease another year. Many leases include an initial one to two-year rental period and after that period has elapsed, the lease because a month-to-month rental agreement. If you are on a month-to-month lease, give your landlord a month or two notice before moving out. There will be language in the lease that the landlord will hold onto a portion of your security deposit for any notification less than that period. The security deposit likely covers a month of travel and would be a nice cash bonus prior to leaving.
If the decision to travel is an impulse decision (or you are laid off from work), calculate the cost of immediately leaving versus the cost of not receiving your security deposit. For example, if you are ready to leave and you have three months or more remaining on a $2,000/month lease with a $2,000 security deposit, you may be able to rationalize not receiving the $2,000 security deposit back because you’d be saving $6,000 on rent, although that’s only the first part of the financial calculation. If you decide to leave before the end of your lease, you will also be responsible for the future remaining monthly payments until a successor tenant signs a lease and moves in—using the same three month scenario, that means you would be responsible for $6,000 of rent. Don’t assume a friend or someone else can move in and assume your lease. Most landlords and apartment rental agreements will not let you sublet or transfer your lease without forgoing your security deposit. The landlord may not have much incentive to actively find a new tenant, so it behooves you to reach out to your landlord and assist with finding a new tenant to help expedite the leasing process. After performing various calculations, I think you will find waiting to start an around the world trip until your lease ends is the best approach.
HOME OWNERSHIP
No book or blog will help you decide what to do with your house during your travels. This is a difficult and personal decision. This isn’t similar advice as telling someone to pack their favorite brand of razors. The only person with true insight into your personal finances and long-term housing plans, is you.
First, do not count any proceeds from the sale of your house as savings for an around the world trip. There are scenarios in which the sale of the house would cover multiple years of travel but I look at selling the house to pay for the trip the same as cutting your 401(k) contributions—you are spending money that could otherwise be earning you money and that’s poor financial planning over the long term. With the mindset that a house can generate income, the “sell or keep” analysis is simple—rent your home. I could, and others have, write a book on the benefits of renting real estate. The only analysis that needs to be performed on this strategy is determining if the rental payments will cover your mortgage. In several markets, and depending upon how long you’ve owned your house, the rental payments should exceed your monthly mortgage, insurance, and tax payments. If that’s the case, rent your house.
If the rent you’d receive doesn’t exceed your monthly payment, you have a more complicated calculation and decision. You need to calculate the difference between the rental income and your mortgage payment and multiply that amount by the number of months you are traveling to determine the total cash out. If you have a $2,000-a-month mortgage on a house that would rent for $1,500, you’ll need to save an extra $6,000 for the trip to cover the mortgage shortfall.
If you purchased your house at the peak of a real estate cycle and will take a real cash loss selling the home, don’t sell. If you bought your house at the bottom of a real estate cycle when prices and interest rates were low, you’d be even crazier to sell your house. If your loan’s interest rate is below 5%, never, ever, sell the property, whether you are taking an around the world trip or not.
If you decide to rent your house, you need to determine whether to do the legwork of finding and vetting a tenant yourself or relying on a property management agency. The property management agency handles all aspects of the rental process from finding a tenant, to collecting monthly rent, to replacing your microwave. They handle basic maintenance and can schedule a heater check in the fall and an air conditioner check in the spring. The costs of these agencies range from 5%-10% a month or a flat fee, such as first and last month’s rent.
The final factor to consider when renting your house is if you can find a tenant with a lease term that will match your travel schedule. Consider yourself lucky if you find someone who wants a one-year rental. Many renters look for longer-term leases because it’s a hassle and expensive to move every year. When you return what do you do? Rent? Move in with your parents? It may be 3 to 4 years before you can move back into your house (don’t assume that because your hypothetical lease goes month-to-month after a year that you will be able to vacate your tenant—rental laws are on the tenant’s side.)
My final push on why renting your home is a good idea—travel may change your financial mindset. Running your travels is like running your own business. You may begin to feel the entrepreneurial spirit while you trek through the Himalayas or motorbike through Southeast Asia. When you return and maintain that entrepreneurial spirit, you’ll wish you had a property to rent. You’ll know the true way to wealth isn’t through savings—saving 15% of every paycheck won’t make you wealthy. To become wealthy, you need other people to give you money. Owning a rental property is one of the easiest ways for someone else to give you money.
My long-term financial plans are to use former primary residences as rental properties and use the monthly rental income to fund overseas living in my retirement years. While financial markets go up and down, a rental property should provide a steady stream of fixed income. Thirty years from now I won’t have a mortgage. If I receive $2,500 a month in rent, my monthly international living expenses are covered.