Should I Turn My Empty Homes Into Rental Properties?

Dateline: Kuala Lumpur, Malaysia

As a highly successful person with six, seven or more figures to your name, you probably know that productivity is everything. 

But what should you do when living the life of a perpetual traveler? Bouncing around from place to place, dropping tens of thousands of dollars on hotels per year, and slowly but surely getting fed up with it all…

Substandard and inconsistent service in high-end chain hotels? Yup.

Planning where you’ll sleep next, creating packing lists and schlepping a whole bunch of stuff around the world?

Been there and done that.

I won’t be the first one to tell you that you can’t build and scale a business when you’re living a life that’s so chaotic.

Now that I follow my Trifecta Strategy, I won’t ever go back to that. I have multiple home bases around the world and have designed my life to flow perfectly from one to the other.

But I never rent my homes out when I’m gone. I have not turned my empty homes into rental properties when I’m gone for one simple reason: productivity.

Why Are Multiple Home Bases Necessary?

If you’ve been around Nomad Capitalist for a while, you’ll know that the lure of this lifestyle is too strong to resist. But it’s not just the travel and luxury that is so attractive. 

The best part is that it allows you to be more successful.

There is something really special about living life in multiple countries, drawing inspiration from different cities, and just feeling alive. Nothing compares, at least for me personally. 

I usually get tired of one place after a time and I’m ready to be on the move again.

If I spend three months in Kuala Lumpur, by the end of that time, I’m craving Europe-time to pep me up. And then, after three months in Europe have gone by, I’m looking forward to spending some time in the vibrant and dynamic Bogota.

The change of scenery is not just nice to have. It’s what keeps me inspired.

What doesn’t? Having to live in soulless hotels and curveball Airbnbs.

If you’re going to build a multi-million-dollar business, you can’t be bouncing around from Bali to Spain to Chile without a plan to optimize the time you spend in each location.

For entrepreneurs and business people, productivity is key. And for that, we need comfortable home bases that can only be created by purchasing real estate and making it our own.

Types of Empty Homes

I have multiple homes that I own around the world that I’ve put into tiers, depending on what I use them for.

Tier A are my core homes. I only feel home when I purchase a property and make it my own. I don’t want to deal with landlords. And I want to be able to redo the kitchen if it’s going to make me happier and boost my productivity.

These homes probably won’t skyrocket in price, but they offer the ultimate comforts.

They each have all the things necessary for comfortable living so you’ll never have to plan and pack again.

Tier B homes are the non-core homes that you’ll visit occasionally. Maybe there is a residence program to take advantage of and you like the place anyway.

For me, that’s Georgia. I keep my Tbilisi home because I go there for holidays in the summer and visit my friends. A mountain house or a lake cottage could be good examples of Tier B homes, as well.

Tier C houses are business bases. They are located in places where you regularly do business and feel kind of like hotel rooms with a few extra features.

Maybe you’ll have a few changes of clothes there or a few items of décor, but you’ll never bring your family there. You could potentiall turn business bases into rental properties for when you are gone.

Tier D houses are purely rental properties for investment purposes. You’d never live in one. Find an amazing property manager, put the house on Airbnb, and forget about it.

I Leave My Home Bases Empty

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Being a successful person who has multiple homes to go to is brilliant.

It’s easy to drop by a city and have a place waiting for me, set up exactly how I want it.

I buy my homes, as opposed to staying in rental properties, because ownership allows me to really put my own touches on the home and make it my own.

I can hang art up on the walls, leave my summer wardrobe in my winter home, keep my sweaters where it’s cold, and knock down walls if I so wish.

Walking into your own home after an arduous flight is a feeling that cannot be replicated by even the most luxurious hotel.

Your clothes are hanging up in the closet and your favorite glass of whiskey awaits.

I also don’t use my homes as rental properties when I’m gone.

Not many of us would willingly let strangers traipse around our homes. Those who do, do it for money.

I’ve chosen not to. My peace of mind – not having to deal with tenants – is worth it.

It’s all part of the price of having this lifestyle and paying the so-called success tax.

Does the Math Check Out?

Let’s imagine you live in NYC and you make $1 million a year. After you account for all of your living expenses, you probably won’t have much left over, given how much tax you have to pay.

So, when you travel for three months of the year, it would make sense for you to rent your property out and get that $5,000 a month. It’s a considerable piece of your total income pie.

Meanwhile, someone living the Nomad Capitalist lifestyle and making the same $1 million dollars, will probably have much lower living expenses than someone living in NYC.

For example, Malaysia is much cheaper and my tax bill is very light. That $5,000 a month is a much smaller piece of my total income pie, so I can afford to forgo turning my home base in KL into one of my rental properties.

A word that gets thrown around a lot is that it’s ‘suboptimal’ to keep homes empty.

However, in the bigger scheme of things, it’s highly optimal. By going offshore, living the Nomad Capitalist lifestyle, and owning multiple home bases, you’re optimizing your income and lowering your taxes.

Sure, we can’t exactly measure the productivity gained by having multiple homes and not renting them, but let’s try to calculate the yield anyway.

Let’s say I could make $16,000 a year renting out my Kuala Lumpur home, but I choose not to. I could be staying at a hotel for $6,000 a year or so if I didn’t own it, so that’s immediately applied to the ROI.

But I wouldn’t be as productive as I am in my home, which could cost me $116,000+ in lost revenue.

I could fail to negotiate a deal because I was busy trying to get WiFi to work in the hotel room or dealing with a burst pipe in a property that I rented to someone in Bogota.

Hundreds of different scenarios could pan out here that could lose me hundreds of thousands in income due to lost productivity and time.

Problems with Empty Homes

There are, of course, practical issues to take into consideration when you’re leaving your properties empty for parts of the year.

Let’s tackle the four main ones.   

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1. The Security of Your Property

This is one of the top concerns for people looking to purchase real estate in a new country.

If you’re looking to plant flags somewhere in Asia or Latin America, you’re most likely worried about the safety of your new home.

And your fears are legitimate. You have limited experience living in the country, you don’t know all the ins and outs yet of owning a property there, and so on.

Would your neighbors take advantage of you, knowing that your property is vacant most of the year and that you’re a foreigner?

To answer questions like that and put your mind at ease, you need to do some careful planning before you buy.

For example, you’d be foolish not to read up on the squatting laws of the country you’re planning to buy in.

What if the law sides with squatters and you could never get them out were they to set up in your property? You don’t want that. 

And if we’re talking about break-ins, the only break-ins I have personal experience with took place in… the United States.

Of course, it’s important to have the right infrastructure, think concierge or a trusted property manager that can keep an eye on things.

Plus, you can always install security cameras and alarm systems. There are so many ways to physically protect your property these days. 

So, in the end, this is one of the easiest issues to solve.

2. Taxes and Fees

Traveling around the world and purchasing properties is a great lifestyle to have.

But as they say, two things in life are certain ­­– death and taxes.

What do you do with the taxes and the fees associated with all of your properties worldwide?

It’s quite simple: you need to have a system to keep things scalable. Cue checklists and SOPs.

Say you have three homes, so you need to create a data sheet for each. What bills are there, which taxes need to be paid and when, how do you pay all the fees that are due?

This data sheet will become the blueprint for running your home so that, even in your absence, a trusted person can do it for you.

One thing you should keep in mind is that some fees, e.g. HOA or even property tax, are non-existent in many countries in the world, which helps keep costs low.

Plus, most of the time, it’s possible to take care of all the bills electronically and automatically. This simplifies things greatly.

You definitely want to avoid a scenario that my friend encountered when he bought a house in Nicaragua. His paper electricity bill would get delivered to his home and placed under a rock in his front yard…

Not very efficient.

3. Affordability

Another thing that motivates people to turn their homes bases into rental properties is affordability.

How can you handle the expense of maintaining multiple empty homes? ‘It must be expensive and out of my reach,’ the thinking goes.

But high costs are easily avoided if you choose your properties wisely. Specifically, buy where the costs aren’t high and the countries are ‘easy’ to deal with.

Avoid countries with layer upon layer of bureaucracy. Keep every aspect related to the house as simple as possible.

If you have a house in the United States, you must pay property tax, school tax and who knows how many other taxes before you even step through the door.

In this case, it could be deemed unaffordable to keep this home empty if you were traveling for a large part of the year. 

However, where I’m buying, I don’t generally need to consider affordability.

4. Practical Matters

And then there are the ‘earthlier’ matters like keeping your house clean and organized.

First of all, if you turn your home bases into rental properties, this is going to be even more difficult to manage. Anyone with experience as a landlord knows how difficult it can be to find good tenants.

You don’t want to arrive at your home base to discover that the last tenants destroyed that expensive painting you hung above the mantle.

But even if you don’t rent out your home, you want to be sure that it is clean and ready for your arrival after months of sitting empty. There are several ways to handle this.

You could send in an ‘advance team’ that would fly to a place ahead of you and fix things up. Cleaning, stocking up on supplies, and fixing anything that might be broken, allowing you to focus solely on your business.

Or, you could have a trusted property manager help you coordinate all the cleaning and any other work that might be needed during your absence and before your arrival.

There are definitely ways to make it work and more than enough people willing to do the work that you aren’t prepared to do.

I would also recommend putting together a ‘welcome guide’ that will not only help someone else maintain your property to your standard but also help friends and family use your home if you wish to ‘loan’ it out.  

Keep It Simple

When it comes to having multiple bases and keeping them to yourself, you need to think strategically and plan meticulously.

If you’re going to follow my Trifecta Strategy, then you might not immediately know which three countries you’d like to choose for your home bases.

And that’s ok. You really need to take your time and consider everything before you buy real estate.

However, there are a few pointers you should keep in mind at all times.

One, pick properties that have low maintenance fees. The fewer taxes and fees, the better. The more automated and digital the process, the better.

And second, be careful where you buy. If there is an extremely complicated bureaucratic apparatus in place, or if you need to lubricate transactions with bribes, then chances are you’re going to have to keep on doing that.

Keep things simple. And keep them even simpler by not renting your homes out.

Why shouldn’t you turn your empty homes into rental properties? Because you can afford not to.

And because your best investment isn’t real estate.

You are your best asset.

So make sure you’re happy in all those homes you don’t have to share.

Source: https://nomadcapitalist.com/2020/02/21/turn-empty-homes-rental-properties/