CityLiving: Should you sell your first apartment or hold onto it as an investment when you move up the property ladder? Jane Suiter gets some advice.

Hundreds of couples looking to buy a place together already have an apartment in one of their names, according to Annette Moore, a mortgage adviser at MMPI.

"They all want us to do the figures and see if they can afford to run both mortgages. The answer is often no, particularly if the apartment was only bought in the last year or two. But for those who bought earlier it is often possible," says Ms Moore.

"Everyone is looking for some bricks and mortar for a pension and this can seem like the easiest and best way to get going. After all, if you have lived in a house or apartment, you know its problems as well as the likely rental demand and so on," says Sarah Wellband of Rea Mortgage Services. "And anyone who has at least 20 per cent equity built up in an apartment can certainly consider it."

The key, as usual, is location, location, location. Most apartment owners have probably seen as much capital appreciation as they are going to get for a while, while the recent decision to remove stamp duty from second-hand homes for first-time buyers is likely to exacerbate this trend.

"It is vital you look long and hard at where your apartment is located," says Geoff Tucker of Hooke and MacDonald. "If you have a city centre apartment, the rental demand is likely to be stronger and there is probably a good case to hold onto it."

But in some suburban areas where there is a large number of rental properties on the market, even a fabulous fit-out will not guarantee tenants.

Marian Finnegan of Sherry FitzGerald also stresses the importance of location when deciding whether or not to sell your apartment. "If it is well-located close to good infrastructure or the city centre it is worth hanging onto if you can," she says. "But, if you need a car to get to transport, it is not as attractive."

Even tenants opting for the best apartments will always try and negotiate the rent downwards.

If you have decided to hold onto the apartment it is vital to calculate whether you can afford both loans, says Niall O'Grady of Permanent TSB.

"You may be getting rent but you are still exposed to fluctuations, and rents have been coming down," he warns.

"We will always look very carefully at affordability if someone comes to us wanting to do this."

The key, says Annette Moore, is to prove that you can meet the mortgage repayments even if the apartment is not rented out for several months. "If the answer is no, you probably have to sell."

A key advantage of renting out your property is the ability to offset your rent against the mortgage balance.

All money used to purchase, improve or renovate the property can be offset against the rent resulting in considerable tax savings for many people.

However, the bad news is that the Revenue Commissioners will not allow you to increase the mortgage and so, if you have already paid most of it off, this is unlikely to benefit you to any significant extent.

One tip is to organise an interest-only mortgage on your apartment, as you cannot offset rent against the capital repayments. This also ensures that the interest repayments stay high, rather than decreasing, which is the most tax-efficient way of proceeding. That way you can try and pay off additional capital monies from your main property.

For example, if your gross rental income is €12,000 but there are costs of €8,000 in interest payments, maintenance and so on, you will only pay tax on €4,000 of your rental income.

It is also vital to remember that when you come to sell the house you will have a capital gains tax (CGT) liability.

The problem is that the Revenue will charge a reduced CGT on the capital built up on average over the time you had the property.

So, if most of the capital gain has already accrued, you could still end up paying CGT on gains made before you rented it out.

You also have to remember that if you bought the apartment within the last five years and did not pay stamp duty, the Revenue will look for a clawback if you now decide to rent it out, warns Geoff Tucker.

Edel Morgan is on leave