Housing and life post Sailing

[JPA Cate]

Originally Posted by seasick

We rented out the house which was free and clear and sailed around the world in the early eighties. This was our 2nd extended voyage. It was great to have a home to return to. 75% or more of our close cruising friends divorced soon after returning to land which is beside the point.

After our 3rd extended voyage of six years, having lived for so many years without all the "stuff" most of which was used to maintain all the other stuff, we were happy to downsize into a resort condo complex next to a great ski area where others deal with all the maintenance and we are free to spend our summers sailing the PNW.

Seasick, that's quite amazing. Most of our old cruising friends are still together. To what do you attribute all those divorces? Is it something to do with one of them wanted to stop cruising and the other wanted to carry on? Maybe you could answer by PM to avoid thread drift.

To the OP:

We invested our nest egg in conservative ways, and it has grown. We knew we were going to cruise as long as it was still fun, and needed to sell my house to convert it to a cruising kitty, so didn't consider renting it out. The concept morphed into "as long as we can." But, ours is not a typical pattern, most people cruise for a while then move on to something else. As one ages, problems due to ageing will affect what your choices will be, but it doesn't pay to dwell on, because you cannot tell in advance what will go wrong. Better to cultivate flexibility, physically and mentally.

Ann

[Bulawayo]

Incredible advice.
I have bought property over the years and it provides very nicely for us. It has enabled us to upgrade our boat along the way as well as buying further property. It is NOT a poor investment - rather it is being careful about what you buy and where.
Individual experiences are not always representative......be they yours or mine.

Originally Posted by aquadreams

> What are people planning to do about a house/cars and old age when you come back from sailing?

> Do people have investment properties to keep a foot in the real estate market?

Real estate rental property is our plan both for cash flow and to keep money in real estate as an investment. We're currently a couple years away from retirement and buying a boat, but have a few rental houses. Will use property managers while out sailing. $20-$30k net income cash flow from each house once the mortgage is paid off. That should be plenty.

At the end of sailing, we'll live in one of the rentals for two years and fix it up so we can sell it without a capital gains hit. You can also avoid capital gains on sale of a rental property by buying another rental property (a 1031 like kind exchange) so we might do that too.


I'd suggest selling your property since you said it will be difficult to rent it out. No sense keeping it if it's not producing income. The question then is where to invest the proceeds while you're out sailing. Putting it into real estate isn't liquid and will tie up your funds so you won't be able to get to the equity if you need to. I don't generally buy real estate unless I'm holding it for at least 5 years. The cost to sell (6% commission, taxes, etc) is a big hit against any appreciation. Managing a rental means a property manager and maintenance expense. Our experience with rental property has been that you incur a lot of maintenance during the early years of owning the property, until things are under control.

My suggestion would be sell now, park the money in stocks and bonds, sail and enjoy life, then buy a property when you return to land. The other thing is that sailing to new places may gave you new ideas of where you want to resume your life on land, so having flexibility in where you purchase post sailing will be a good thing.


> property is really bad investment, made look good by perpetual money creation.

I seriously don't know where people come up with this stuff. My (real) experience is completely the opposite.


Cheers,
Joe

[seasick]

Ann T Cate asked: To what do you attribute all those divorces? Is it something to do with one of them wanted to stop cruising and the other wanted to carry on?

This sounds close enough to the original topic to warrent an answer as divorce makes moot so many of our post cruising plans.

Couples go their separate ways for many reasons but if I had to look for a common denominator, I'd say that the extraordinary incidence of divorce among our cruising acquaintances was due to the fact that when the common goal of keeping each other alive was removed or delegated to others, the bond was deminished.
or
perhaps being in such close proximity one to the other day in and day out afforded them the opportunity to realize that they were better off without each other,
or
once the dynamic lifestyle was removed boredom set in,
or
too many beach parties turned one or both of them into alcoholics
or
I really can't imagine as the cruising life has only made our relationship stronger and we both continue cruising in our age defined capacity.

[AiniA]

I think a lot depends on where you live and your personal circumstance. When we were away (7 years) an adult son lived in our house. He paid for the taxes and utilities (we had no mortgage. Because of the crazy Toronto area real estate market our house came close to doubling in price. We sold it when we returned and moved further away from the city where prices were much better. As a result we now have extra money beyond a paid off house. Of course the local housing market could have collapsed while we were away as has been predicted for years. If it collapsed of course we still would have had somewhere to live.

[Amblecampbell]

Hi Wildfire (and Ann T. Cate....),
My wife and I have lived aboard up the east coast of Oz and in the Med for the last five years. We set ourselves a goal of five years, and now that time's finished our big decision was what to do. I feel I've just scratched the surface of cruising, but my wife's had enough. Fair enough too, as she was never a blue water sailor and misses the family and comforts of shore life. So we've decided (very amicably) to separate.
We've agreed on a fair split of the assets, and to get to your point about post-cruising financing in Australia.... We kept our Sydney home rented while we cruised, and have just sold that. With my half I've invested in two smaller apartments in Sydney. Together these give a gross rental yield of just on 5%, and with the capital growth in Sydney I think I'll do better than the banks or bonds over the ten years or so I plan to slowly circumnavigate. I also have a self-managed super fund (shares and a bit of cash) which is still in accumulation mode. When I turn 60 in three years I'll convert that to a pension. I could have added to the super, but I wanted to spread the risks and maintain some sort of diversity.
Not sure if the above will help you as everyone's circumstances are different. Good luck with your plans.

[GILow]

We plan to rent the house out and have renovated it with that in mind. (I.e. Making sure whatever we do will not be a maintenance problem or too specialised for a normal renting family to manage). We are also fortunate in having what is effectively a false second story on the house so we will be able to store our furniture and belongings in the building while it is rented out. (Sentimental stuff will go to stay with family members)

In this case the OP has decided to sell the current home for what appear to be good logical reasons, but I would suggest to the OP that if you buy a replacement home to rent out while you are travelling (a good idea to my mind) then don't make the mistake of buying a "rental home". In other words, buy a home that you would want to live in on your return, not some speculative rent optimised unit or the like. The likely difference in overall returns are not going to be all that great and the stamp duty costs of selling the rental and buying a home you want to live in will far outweigh any difference in financial return when you get back.

Also, you won't know how long your cruising will last so you may be back in as few as a couple of months or be away for a decade or more. Therefore you have no idea how the real estate market will look and cannot anticipate if your rental property will be easy to sell and if your rental property can even still fund a home you want to live in.

Matt. (Three years behind you and counting down)


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[0urh]

Originally Posted by WildFireAus

However having said that the financial advisor suggests keeping everything in superannuatation.

IMHO this is a good option. No problems with tenants, vacancies, damage to property. No capital gains tax, negative gearing to complicate tax returns. Returns in Super are in low/no tax evironment and available as a lump sum and/or income stream when you decide to finish cruising. Then, purchase the property you want, in a desirable location, without the problems of removing tenants, fixing the place, paying capital gains tax etc, etc..

Who knows, you may find after some years cruising the Queensland coast you may want to retire here, keep the boat and have a house

[sailingforfun]

One last word of caution on the capital gains exemption on a personal residence.

If you have owned your personal residence for a long time and hopefully have a large built in capital gain, then decide to rent your property, you will have converted your personal residence into an investment property and it will not qualify for a personal capital gains tax exemption should you sell the property in the future while it is still a rental property.

I would sell my personal residence first to avoid any capital gains tax, then repurchase investment property.

(Like all financial advice check/verify with your local investment advisor)

[giant]

Originally Posted by GILow

We plan to rent the house out and have renovated it with that in mind. (I.e. Making sure whatever we do will not be a maintenance problem or too specialised for a normal renting family to manage). We are also fortunate in having what is effectively a false second story on the house so we will be able to store our furniture and belongings in the building while it is rented out. (Sentimental stuff will go to stay with family members)

In this case the OP has decided to sell the current home for what appear to be good logical reasons, but I would suggest to the OP that if you buy a replacement home to rent out while you are travelling (a good idea to my mind) then don't make the mistake of buying a "rental home". In other words, buy a home that you would want to live in on your return, not some speculative rent optimised unit or the like. The likely difference in overall returns are not going to be all that great and the stamp duty costs of selling the rental and buying a home you want to live in will far outweigh any difference in financial return when you get back.

Also, you won't know how long your cruising will last so you may be back in as few as a couple of months or be away for a decade or more. Therefore you have no idea how the real estate market will look and cannot anticipate if your rental property will be easy to sell and if your rental property can even still fund a home you want to live in.

Matt. (Three years behind you and counting down)


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I would advise against leaving any belongings behind in a rental property, too many horror stories.

Almost guaranteed one of your tenants will break into your storage and take/use, sell your stuff. Seen this happen over and over again.

[arsenelupiga]

based on overwhelming love with property on this forum and elsewhere, i can guarantee in 10 years, mood towards property will be significantly different.

you are investing your money to gain expected 2-3% above deposit rate based on assumption new buyers that cannot ever repay loan will receive lonas from banks till prices approach infinity. Like banks are on hook as they cannot stop lending. This is crazily bad risk/reward trade.

This kind of logic never works longer term.

I hate to see your sailing adventure abruptly stopped and going back to work which probably will not be in same league as before.

One should have no more than 1/3 of assets in property and ignore bank propaganda.

[GILow]

Originally Posted by giant

I would advise against leaving any belongings behind in a rental property, too many horror stories.

Almost guaranteed one of your tenants will break into your storage and take/use, sell your stuff. Seen this happen over and over again.

:^)

As my dear old dad would say... "Get a better class of tenant."

[Cheechako]

Not being in the real estate market can be devastating... depending on your bank account. In the last 20 years I would guess the cost has gone up 5X or more in this area of the country.

[GulfportBarb]

According to the IRS you can rent out your home for 3 of the past five years and still get the capital gains exclusion if these conditions are met:

Business or Rental Use of Home
Determine whether the space used for business during the 5 years before the sale is considered to be within your home or not. If the business or rental space was physically part of the living area of your home, such as a spare room used as a bed-and-breakfast bedroom or attic space used as a home office, your business usage does not affect your gain/loss calculations. Complete How to Figure Your Gain or Loss Worksheet , later.
If the business or rental space was not within your living space, such as a first-floor store with residence, an apartment with its own entrance (and kitchen and bath), or a working farm with a farmhouse on the property, continue to Determine whether the business or rental space still counts as a business space , next.
Determine whether the business or rental space still counts as a business space. A space formerly used for business is considered residence space if ALL of the following are true:
You were not using the space for business or rental at the time you sold the property,

You did not earn any business or rental income from the space in the year you sold your home, and

You used the space as residence space for 2 years out of the 5 years leading up to the sale.

If all of these are true, your business usage does NOT affect your gain/loss calculations. Complete How to Figure Your Gain or Loss Worksheet and then go to How Much Is Taxable , later.
For more information about using any part of your home for business or renting it to someone, see Pub. 587, Business Use of Your Home, and Pub. 527, Residential Rental Property.

[GulfportBarb]

Business or Rental Use of Home
Determine whether the space used for business during the 5 years before the sale is considered to be within your home or not. If the business or rental space was physically part of the living area of your home, such as a spare room used as a bed-and-breakfast bedroom or attic space used as a home office, your business usage does not affect your gain/loss calculations. Complete How to Figure Your Gain or Loss Worksheet , later.
If the business or rental space was not within your living space, such as a first-floor store with residence, an apartment with its own entrance (and kitchen and bath), or a working farm with a farmhouse on the property, continue to Determine whether the business or rental space still counts as a business space , next.
Determine whether the business or rental space still counts as a business space. A space formerly used for business is considered residence space if ALL of the following are true:
You were not using the space for business or rental at the time you sold the property,

You did not earn any business or rental income from the space in the year you sold your home, and

You used the space as residence space for 2 years out of the 5 years leading up to the sale.

If all of these are true, your business usage does NOT affect your gain/loss calculations. Complete How to Figure Your Gain or Loss Worksheet and then go to How Much Is Taxable , later.
For more information about using any part of your home for business or renting it to someone, see Pub. 587, Business Use of Your Home, and Pub. 527, Residential Rental Property.

[GILow]

Err... I think the OP is in Australia. Not sure the IRS rules apply here. :*)


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