You want to spend a lot of time abroad, but you own a house. Rent it out? Sell it? Let’s look at some options and their surprising results.

If you own a house in your home country, you could use it to:

  • Help fund a life of travel
  • Qualify for a visa or even citizenship in another country
  • Buy a nicer house in a less expensive country

Here are some things to consider.

Your house has an invisible cost

Even if you own your house outright, you’re paying an invisible opportunity cost.

It’s the amount you could make if you took the money out of the house and used it for something else.

Example: Let’s say your equity in your home is $300,000. If you took that money out of the house and invested it in something that pays 4%, you’d get $12,000 a year in effortless income.

If you choose your investments well, your dividends and principal will grow each year. But we’ll stick with the $12k figure to keep it simple.

So the annual cost of keeping your $300k house might be the total of the following:

  • Missed investment income: $12k
  • Property tax
  • Repairs, maintenance
  • Home insurance, mortgage interest, fees, etc.

For a house in the US Midwest, the total cost might be $28k per year. There are people who spend that to travel the world full time (Brian and Carrie, for example). So why spend it on a house you barely use?

“But it gives me a cheap place to live.”

If you’re reading this, you don’t want to spend all your time in your house. You want to travel and maybe come back for a few months a year.

This makes the cost of keeping the house even more important.

Example: Let’s say the cost of keeping your house is $28k a year. That’s your opportunity cost plus the out-of-pocket costs.

If you spend four months a year in that house, you’re paying “rent” of $7,000 per month. You could rent a short-term place for a lot less.

You could miss even bigger opportunities

Depending on its value, if you sold your house, you could get:

  • A home and residency in Europe: Non-EU citizens can buy a home of a certain value and get residency in Greece, Serbia, Cyprus, Malta and others – search for “golden visa.” It might be cheaper than you think.
  • Immediate citizenship: Skip the visa hassles in Turkey, Caribbean countries, and others – search for “citizenship by investment.”
    • If you get citizenship elsewhere, you can renounce your current one. This is sometimes a goal for US citizens due to the extra burdens their government puts on them when they leave.
  • A nicer home in a less expensive country, especially if you now live in the US, Canada, or UK
  • A modest home in a less expensive country, with a pile of money left over to invest or spend

“But my house will appreciate.”

Maybe it will, and maybe it won’t. Do you want to wait for it to appreciate before you start your life of adventure? Or do you want to leverage its current, guaranteed value?

Of course, another option is to rent it out. You can decide later whether to sell it.

Is renting out your house worth it?

It sounds appealing: You get rental income while you run around the world. Then, if you decide to live abroad full time, you can sell your house.

A lot of people do it. But don’t underestimate the costs and hassles involved. I’m all about costs and hassles, and I’ve been a landlord, so here’s a fun list.

  • Rental income isn’t steady. For example, you might not have a tenant for a few months.
  • Renters are human beings with human imperfections. This can lead to strange requests, sudden departures, and far more cats than you agreed to. In contrast, a stock portfolio is a bunch of numbers that will never call you at 2 AM or set the kitchen on fire.
  • A manager will handle renters for you but that adds to the cost. They could also have their own imperfections, such as not responding quickly enough to tenant complaints, so then the tenants call you or leave.
  • You’ll be subject to government rules beyond your control. For example, bureaucrats could suddenly require you to install a heat pump even though the conventional furnace works fine.
  • Your rental income could be taxed at a higher rate than investment income. You might also have to report and pay more frequently than once a year.
  • You might be considered a tax resident of the place your home is in, even if you spend the entire year abroad. For example, if you’re a US citizen and your home is in California, you’ll probably have to file income tax with California as well as with the IRS, even if you spent the entire year in Asia.
  • Your taxes will probably get more complicated, because now your house is a depreciable asset used for income.
  • If you rent out your home for several years and then sell it, you might pay more tax than if you had sold it sooner. The tax authority might say that your house is no longer your primary residence but a business and charge you more.
  • If you hope to use the rental income to qualify for a visa, it might not work, depending on the country and visa.

The main benefit is emotional

If you rent out your house while you travel, you can always go back home. You’d have to give the tenants notice and camp somewhere else for a while, but it’s still your house, and eventually you could regain it. Only you can decide if that comfort outweighs the hassles.

The drawback: You don’t commit to your new life

If you’re serious about moving abroad, some people recommend selling everything before you leave, including your house. Don’t even put anything in storage, they say – let go of it all. Burn your ships to make sure you commit to trying a new life.

“But my house diversifies my portfolio.”

Some people view their house as an investment. Then they can say, for example, that 30% of their investment portfolio is in real estate, and that’s a good thing, because diversification is good.

Let’s look more closely at that.

  • Would you buy your house if you were a cold-blooded investor? Is it objectively a good investment? Why?
  • Your real estate portfolio consists of just your one house. As a result, you’re seriously exposed to changes in one housing market.
  • A lot of your other investments are probably in your home country or region. Diversification is supposed to reduce the risk of your portfolio, but your house is in the same place as everything else.
    • For example, for Americans, a typical portfolio might be US ETFs, US bonds, and their house, plus maybe 10% in international funds. That’s not very diverse.

Other ways to invest in real estate

If you want exposure to real estate, you have other options that add real diversity to your portfolio. Here are some ideas that are definitely not investment advice because I’m a random stranger on the internet.

REITs: You could buy shares in a real estate investment trust (REIT). REITs combine lots of rental houses, commercial buildings, hospitals, etc. into one investment. If the rental market in Location A tanks, no problem, because you’re also invested in many other locations. Bonuses:

  • REITs are easy to buy and sell, just like stocks in an online brokerage.
  • You have no repair costs, renters, property tax…

Invest in real estate abroad: Still want physical real estate? You could sell your home and buy real estate in other countries. Don’t use a big chunk of your net worth, because the goal is diversification, not “exchange one big risk for another.”

  • Consider buying in a country that’s in a different economic sphere than your home country. For example, if you’re Canadian and a lot of your money is still in Canada, you could diversify with real estate in a BRICs country or Asia, if the market is good.
  • If you have the funds, you might buy multiple properties in different regions to spread your risk.
  • See The Wandering Investor for examples of how to evaluate a property and market.

Time your home sale for the best tax rate

If you expect to sell your current house, time the sale so it gets the best tax rate.

For example, if you’ve established tax residency in another country and then sell your house back home, you might be required to pay the current country’s capital gains rate. If that’s lower than your home rate, great. If not, you’ve just made a painful contribution to your new country.

If you’re pretty sure you’ll end up living in a country that has a higher rate and that taxes your global income, you might put off establishing tax residency there until you’ve sold your house and the gain can be assigned to your last tax year at home.

Talk to tax professionals in both countries to find out how the timing could affect you, and how renting out the house might alter things.

The PwC worldwide tax summary will get you started on comparing rates.


Image at top: Near Salta, Argentina