To rent or sell?

Bythefire

A friend inherited a 2 bed house a few months ago. He had only bought his own place when this happened.

Having a conversation today, he's not sure to sell the inherited house or rent it. He said if he rents it he would only do short term rentals 6/9 months at a time. I don't think he wants to be a landlord but for whatever reason doesn't really want to sell it. My advice is to sell and clear his mortgage.

I told him I'd ask here if anybody else has been in a similar position and what they did?

davindub

Not a simple decision, your friend would probably need proper financial advice.

I would rent it out, the income and capital appreciation would far outpace any savings on the mortgage. Someone will come along now and say stick it in shares, the markets are extremely volatile at the moment..avoid.

Sunrise_Sunset

Personally I would want to avoid the headache that is being a small-time landlord.
It's a pain in the ass.
If it were me I'd sell it and clear my mortgage.

dennyk

He really would be better served by getting proper financial advice, but it definitely doesn't sound like he has the first notion about being a landlord if he thinks he can rent the place for 9 months at a time; that won't happen since tenants gain Part 4 security of tenure after six months regardless of any agreement that might say otherwise. If he does go the landlord route, he absolutely needs to get professional advice on that score as well, or he is no doubt going to make some very costly mistakes.

godtabh

sell, sell, sell, all the way

One bad tenant and any return you may have expected would be up in smoke

DubCount

As others have said, getting professional investment advice is always worthwhile when dealing with decisions involving large amounts of money like this. Without full details of financial situation of the property owner, my initial reaction is to sell. Invest the money into a pension scheme over time, which should generate a better return without the heartache of being a landlord.

Bythefire

I think he is contacting some accountants to get their advice.

I'm not sure how much he knows about tenants rights, he threw out 6/9 month rentals during conversation.

His own financial situation is he's a single guy, no kids, he doesn't have a huge mortgage - I don't know how much that is. He doesn't lead an extravagant lifestyle.

Thanks for your replies.

Samuel T. Cogley

Sell it. Being a one off LL is a mugs game these days. Life is too short.

Fol20

If he doesn’t want to be a ll, I would sell it. From an economic standpoint, the cash flow will not be that great as it’s a long game approach. You can have a lot of heartaches in between.

At least if he sells and pays off the mortgage. That’s a guaranteed return of x percent. On top of it, if he isn’t already doing this. He should max out his pension contributions. This is the easiest and least complex approach that would suit the vast majority of people. Have only one rents property without the economies of scale aspect his quite difficult to maintain.

Mad_maxx

He got it for free, lease it to the council for ten or twenty years

Rent guaranteed though they usually put animals in the place

Only joking, sell and pay off half the mortgage, put the other half in an equity fund after the next stock market correction and leave it there long term but seek advice, most funds require you sell after seven years, this state hates people investing in the financial markets

the_syco

Bythefire wrote: »

He said if he rents it he would only do short term rentals 6/9 months at a time.

Can't see anything stopping the tenant staying 6 years as Part IV after staying there for 9 months?

Tell your mate to pick the best house of the two, and sell the other one.

accensi0n

I'd sell. I'd rather gain a lump of cash than a massive pain in the hole.

Busman Paddy Lasty

Sell and pay off as much mortgage as possible. Follow through with professional advice first.

Bythefire

Thanks for the replies.

He says he is going to rent it for 6 months and take it from there.

the_syco

Bythefire wrote: »

He says he is going to rent it for 6 months and take it from there.

Tell him that if he doesn't like being a landlord after 4 months, get rid of the tenant. If he decides to evict them after them being there for 6 months, he'll either have to give a specific allowable reason, or the tenants will be able to stay there for many more years as a Part IV tenant.

the_syco

Bythefire wrote: »

He says he is going to rent it for 6 months and take it from there.

Also, have him check with an accountant about Capital Gains Tax; https://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_gains_tax.html

The 6 months of renting may knock a decent bit of change after he pays tax.

Sonny noggs

the_syco wrote: »

Tell him that if he doesn't like being a landlord after 4 months, get rid of the tenant. If he decides to evict them after them being there for 6 months, he'll either have to give a specific allowable reason, or the tenants will be able to stay there for many more years as a Part IV tenant.

Let’s hope the future tenant goes quietly. If the tenant chooses to over hold and stop paying rent them the 6 months could turn into 2 long stressful years.

Rows Grower

Mad_maxx wrote: »

He got it for free, lease it to the council for ten or twenty years

Rent guaranteed though they usually put animals in the place

Only joking, sell and pay off half the mortgage, put the other half in an equity fund after the next stock market correction and leave it there long term but seek advice, most funds require you sell after seven years, this state hates people investing in the financial markets

This would be my advice if it was a friend of mine.

He'll get 8% less than the current rental market rates but will never have to worry about tenants leaving as the council will take responsibility for having the house occupied.

There will be no sob stories when the rent is due, it'll be paid into his account on time every month without fail once he has an up to date tax clearance certificate.

He'll also get an annual 4% increase in rent every year once he remembers to write and ask the council.

8% is peanuts compared to the peace of mind it gives and the hassle it saves.

Spanish Eyes

Well the pluses are a regular income (taxed), but factor in house insurance, LPT, constant maintenance calls, the fridge, freezer, shower, electrics and so on. Need a deep pocket in reserve for all that, and it IS the responsibility of the LL to fix things.

It is also very difficult to evict a tenant for overholding/non payment of rent. Takes a year or more with costs attached to LL even if costs are awarded against tenant. Tough job.

I couldn't do it. Would be there over my head all the time. But each to their own I suppose.

westgolf

Rows Grower wrote: »

Mad_maxx wrote: »

He got it for free, lease it to the council for ten or twenty years

Rent guaranteed though they usually put animals in the place

Only joking, sell and pay off half the mortgage, put the other half in an equity fund after the next stock market correction and leave it there long term but seek advice, most funds require you sell after seven years, this state hates people investing in the financial markets

This would be my advice if it was a friend of mine.

He'll get 8% less than the current rental market rates but will never have to worry about tenants leaving as the council will take responsibility for having the house occupied.

There will be no sob stories when the rent is due, it'll be paid into his account on time every month without fail once he has an up to date tax clearance certificate.

He'll also get an annual 4% increase in rent every year once he remembers to write and ask the council.

8% is peanuts compared to the peace of mind it gives and the hassle it saves.

Where does it say that you get a 4% increase every year ? Not with the HAP scheme.

Samuel T. Cogley

Rows Grower wrote: »

This would be my advice if it was a friend of mine.

He'll get 8% less than the current rental market rates but will never have to worry about tenants leaving as the council will take responsibility for having the house occupied.

There will be no sob stories when the rent is due, it'll be paid into his account on time every month without fail once he has an up to date tax clearance certificate.

He'll also get an annual 4% increase in rent every year once he remembers to write and ask the council.

8% is peanuts compared to the peace of mind it gives and the hassle it saves.

Dublin's scheme is 80% (85% where there is a management fee) of market rent and 2/4 year rent reviews on 10/20 year leases respectively.

Rows Grower

westgolf wrote: »

Where does it say that you get a 4% increase every year ? Not with the HAP scheme.

The 4% annual increase is only in areas which are in the "rent cap zones", outside of those zones a bigger increase can be applied for.

Sonny noggs

Is the apartment up to HAP scheme minimum standard?

Rows Grower

Samuel T. Cogley wrote: »

Dublin's scheme is 80% (85% where there is a management fee) of market rent and 2/4 year rent reviews on 10/20 year leases respectively.

Wasn't aware of that as I don't own properties in Dublin, what are the % limits on rent increases with a 4 year rent review?

Samuel T. Cogley

Rows Grower wrote: »

Wasn't aware of that as I don't own properties in Dublin, what are the % limits on rent increases with a 4 year rent review?

Not sure if RPZ rules apply. The rent would be reviewed to 80/85% of market rate, that could be up or down.

nsi423

You mention that he doesn't lead an extravagant lifestyle. If he can maintain his current lifestyle even with this new asset/income, then it puts him in a very good position for the future regardless of what he does with it!

DubCount wrote: »

Invest the money into a pension scheme over time

If it were me, I'd like to think I would do this. Sell the property, clear my own mortgage and then (the hard bit) start paying TWICE the equivalent of my old mortgage payments each month into my pension (unless I hit the tax free limit, based on age). Assuming he is on the higher tax band, his lifestyle won't be affected. Retire early!

duffman13

Depending on location and the kind of tenants you may get but a long term local authority let MAY suit. Could get 10 years of rent towards the mortgage but still hassle involved and obviously tax. Personally I'd rent but it really depends on the area your in tbh

Bythefire

I'll check with him tomorrow, I think he is looking at renting to hospital staff/teachers. It's not too far from hospital/schools. He did say that was his preference. It's not in a rpz but location wise it would be very easy to rent.

Would it be better for him to rent the 2 rooms out individually?

Grumpypants

Sell it and pay down/off their own mortgage. Imagine how much more enjoyable and hassle free their life would be with an extra grand a month in their pocket.

the_syco

IIRC, he'd be liable for repairs for the first 6 months, and if/when it gets inspected by the council, he'll have to update the house to whatever standard that they demand.

What BER is the house? Does it have recent insulation?

Bythefire

I get the impression he won't rent to council. He was quite adamant about teachers/hospital staff.

I'm not sure what the ber rating is but I know of the area and they are old houses. I don't know how much he intends spending to do it up, I'm sure he will have to do something to it.

Will see him later and ask him.