Honourable and personal residential letting experts

3Apr

Should you sell your property with your resident in situ?

 

People say that the 1988 Housing Act started the PRS (Private Rental Sector) as we know it today, but it was the start of buy-to-let mortgages in 1996 that really got things moving.

We say that being a landlord is a long-term strategy so 28 years on it’s not surprising that those people who became landlords in 1996 are now looking to sell the asset. However this gives some a dilemma in that they may have very long-term tenants, who they have a good relationship with and understand that by deciding to put the property on the market means their resident will be losing their home.

The obvious answer will be to sell to another investor. And forget what you are reading in the papers – there are still people in the market who want to increase their portfolio.

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.

An investor will be looking at the return – they are not interested in what Zoopla, Rightmove or your trusted estate agent tell you. If we are being asked to recommend a property to our investor group, I will be looking to make sure that they will be achieving at least a 5% return.  Therefore, those landlords who have kept the rental below market rate cannot expect market rate if they want to sell with your resident in situ.

You also 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 £5,000 – £6,000 taking into consideration estate agent fees and legal fees. On top of this you must consider capital gains tax.

Another consideration is what monetary benefit you will gain after say five years. Having worked through this sum with a couple of landlords, on average the profit made from the sale equated to about four-and-a- half years of rental income. Plus, at the end of thefour-and-a- half years they still had the asset.

Therefore, if you are selling because you want some money in the bank or to give to the grandchildren there could be different ways of cutting the cake. But for that you need specialist advise from an independent financial advisor or your accountant .

Advantages and disadvantages of selling with residents in situ?  

Having a resident in situ is 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

Get the right advice to suit your needs. If you go down the route of selling with your resident in place understand that you will most probably not achieve the open market rate. If you go on the open market don’t expect your resident to be so happy about your decision. Once you give notice you will be able to gain possession however it may take longer than two months.

It is also worth making sure that all of the legal certificates are in place as the sale will either fall through or be delayed if these are not in order.

How we help

Over the years we have worked as an introducer to landlords wanting to sell as well as people wanting to extend their portfolio. For a bit more information visit our investor services page. 

If you are interested to find out more just give us a call on 01480 494939