Benefits of selling a property with your resident in situ
In this blog we shall cover:
- What you need to consider before selling
- The advantages of selling with tenants in situ
There is a lot in the media talking about how the private rental sector (PRS) is shrinking and this is causing a huge imbalance on supply of properties against the demand- the main reason why rents are increasing at such a level.
From personal experience we are finding that some more mature landlords are deciding to sell but are also finding that new landlords are entering the market as even with increased costs, they can find a 5% gross return on the properties they are buying.
What you need to consider before selling
Maybe an odd question but you really need to consider why you want to sell and what income you want to get from a sale.
Therefore, you need to understand what it is going to cost you to sell the property. ‘Which?’ recently reported that the average cost of selling a property was £5000 – £6000 taking into consideration estate agent fees and legal fees. On top of this you must consider capital gains tax.
Having worked through this sum with a couple of landlords, on average the profit made from the sale equated to about 5 years of income. Plus, at the end of the 5 years they still had the asset.
So, you need to understand the return you are receiving. Therefore, if you are selling because you want some money in the bank, just make sure that what you receive in interest is more than you are already receiving from the return.
The other consideration is have you looked into equity release – it can work out a lot cheaper than paying CGT! But for that you need to talk with an independent financial adviser.
Advantages and disadvantages of selling with residents in situ?
Having a resident in situ can be an attractive selling point if you are marketing the house to other investors, as the property offers a guaranteed rental income on completion date to the buyer. Also, you are guaranteed rental income up until this point.
The disadvantage is you will need to market the property as a ‘buy-to-let’ listing. This could narrow the pool of potential buyers as they will be looking at the rental return which may give a lower price than you had considered.
You can also choose to terminate the tenancy and sell the property vacant. The amount of notice you will need to give will depend on different factors such as the terms in your tenancy agreement. This is a route taken by many landlords who wish to sell the property to a new homeowner, rather than another landlord. However, you need to consider that at the point your resident leaves not only will you lose rental income, but you will be liable for the standing utility charges including the council tax.
What you need to do?
Not much really. Obviously it is worth while making sure that all of the certificates are in place as the sale will either fall through or be delayed if this has not been done. However all the legal changes take place at completion, and it will be down to the new owner to register the tenancy in their name. Dependant on how you hold the deposit, you will need to obtain permission from the resident to transfer this into another name. Remember the deposit is the resident’s money not yours!
How we help
Over the years we have worked as an introducer. Which means that we do not charge a fee.
If you are interested to find out more just give us a call on 01480 494939
