Making Cents: Should you sell or rent out a second home?

We answer a reader's request for advice on how to decide between selling a property and renting it out

There are many factors to consider when deciding between selling a property and renting it out.

I have written a lot about mortgages and property in recent weeks and it has led to a number of interesting queries from readers. One in particular was asking for advice on how to decide between selling a property and renting it out. The reader bought a house in 2007 at the height of the boom and then watched the value plummet in the following years. They estimate its value dropped somewhere between 50% to 60%, possibly even a little more. They were always able to maintain repayments on the home so arrears is not an issue in this case. Now they are wondering whether to sell the house (still for less than they paid for it) or rent the property.

I turned to property expert Michael O’Donovan, of Savills Cork for advice, who tells he is aware of a whole cohort of people weighing up similar considerations.

“It is a common dilemma for those who bought at the height of the boom,” Mr O’Donovan says. “As you and homeowners like you have endured the downturn and are now in a positive position after waiting many years to get there, the question of selling should be carefully considered and unfortunately the answer is not clear cut.” 

He ran through the factors each individual should consider before coming to a decision.

Property expert Michael O’Donovan, of Savills Cork.

“Every year you keep your property, the more you pay off your mortgage and the greater your return on sale,” he says. “It is fair to say most properties have not yet reached their peak value of 2007. Whilst price growth has been consistent and reliable each year since the low point of the market in 2013, it is now likely to enter a period of marginal change."

So, if it is time to move and you have the option of renting out your existing property or selling, Mr O’Donovan highlights a whole range of costs associated with renting a property, some of which may be news to people to have not previously been involved in this area.

“[There are] costs such as continuing mortgage repayments every month, property insurance, maintenance of the property and its appliances, annual tax bill on your rental income and agent fees if you use a letting agent,” he points out. “Other costs to consider are painting the property between lettings if needed, or in preparation for sale, and allowing a contingency budget for months when the property is between lettings.

“You should also consider your time and continued responsibility that comes with owning a second property.”

Set against these costs are the rent.

“These financial commitments should be balanced against the rental income achievable each month,” Mr O’Donovan says. “Both figures should be viewed on an annual basis.

In my opinion if there is a cost to you, the property should be sold. If the property is washing its own face, you can allow some more time to pass to pay down your mortgage further and make a better return on your sale.

If you do decide that renting is the best option for you, take the time to learn more about what your rights, responsibilities and obligations will be as a landlord. A good place to start is RTB.ie, the website of the Residential Tenancies Board, also known as the RTB. This public body was set up to support and develop the rental housing sector. Its role is to regulate the rental sector and provide a range of support for tenants and landlords. On its website you will find detailed information on what you should do as a landlord when beginning a tenancy, during a tenancy and when it is coming to an end. The site also has a number of forms and templates landlords can use in specific situations such as if your tenant falls into arrears.

When it comes to the tax implications of renting a property, you will find detailed information on revenue.ie on how to calculate your taxable income, find out what expenses can be used to reduce this amount and learn how to file a tax return.

If you feel that management of the tenancy and the property is too time consuming, you should consider engaging the services of a property management service.