Case study: Drop the asking price or rent it out?

BACKGROUND
I came across this topic when posting about a price drop on another house in the same estate. I thought it would make an interesting mini case study, because instead of selling, the vendor decided to rent out their house.
viewtopic.php?f=23&t=26285
myhome.ie/…1280133

This little case study examines whether the rental income will come close to compensating for the price drop between what they could have got for this house last summer and what they would get today or in the future. So I did some maths, under admittedly tenuous assumptions, to see whether renting it out was a smart move.

ANALYSIS

1. Last asking price recorded in the original topic was

although no link was given (tut tut).

1. But the asking price last summer is not really relevant: the real question is, what could they have got for it back then if they had been willing to drop to a price at which it would sell? I’m going to assume that they could have got at least €370k. I based this on data found in the original topic:

That was a 3-bed. A reasonable assumption is that if no. 3 sold quickly at an asking price of €379, it fetched €320-340k. Add on the extra bedroom in no. 16 for a cheapish €30-50k, and we get €370k. Based on the data provided here, that seems like a conservative estimate of what they could have obtained.

1. So what would they get today? Well, 4 Mount Eagle Lawn, another 4-bed semi, is currently for sale asking €325k:
viewtopic.php?f=23&t=40472
so let’s be generous and imagine that no. 16 could ask the same and get almost the full asking price - say €300k.

2. Based on these assumptions, the owners of no. 16 would be €70k richer than they are today, if they had dropped the price fast last summer to a point at which they could have sold.

3. Not sure what rent they were asking, but the myhome.ie lettings link at the top of this post shows the deposit required was €1,425. So let’s assume a generous 11 months but no other associated costs (ha!) this gives an income of €15,675 for the coming year.

CONCLUSION
So the answer is that in this case at least, renting out the house was a really bad decision. I haven’t even taken into account the costs of maintenance, tax on rental income, further price declines in the house value, interest-earning potential if they had sold last year, and a whole bunch of other factors. Of course, I did make a lot of assumptions in the absence of direct information, but where possible they are evidence-based. I’d be happy to see the assumptions and analysis improve by other posters, or to see other examples and arguments which may support or contradict these conclusions.

It may not have been much of a decision. That’s a relatively recently built house and is probably in negative equity. Banks aren’t big on short sales, so they may not have been able to drop price low enough to sell it.