Why it Makes Sense to Sell with Tenants in Situ
It’s no secret that private landlords have faced increasing pressure in recent years. Additional costs and regulation and less favourable tax treatment have prompted many to consider selling up, and this has contributed to a growing shortfall in the availability of private rented property. A study commissioned by the NRLA earlier this year showed that the UK needs almost 230,000 new private rental properties a year to meet demand.
Of course, any landlord wants to get the best price for their property, and if they approach a typical estate agent they will often be advised that the way to get the best price is to offer the property with vacant possession, which means serving notice on the tenants. Estate agents will tell you that this makes the property more attractive to a wider pool of buyers: not just investors but also potential owner-occupiers.
The truth, though, is that many estate agents simply aren’t as comfortable with marketing property with sitting tenants, and want to make their life easier. It’s often the case that they are not used to dealing with investment buyers, and they don’t have investment buyers on their books, so they stick to what they know.
In my experience, In many cases it makes a lot more sense to list the property with tenants in place, for five good reasons:
1. There’s no loss of income
If you can keep tenants in place and sell to another landlord, you carry on receiving rental income right up to the date the sale is completed. If you serve notice on the tenants and have a property sitting empty, it is no longer earning, and you have no guarantee of achieving a quick sale. Long delays – by no means uncommon in property transactions – could add up to a significant loss of income.
2. The buyer gets a guaranteed yield
The same reasoning also applies to the buyer: they start receiving income straight away, at a known rate, so they know exactly what they are getting. A vacant property doesn’t give the same level of confidence, particularly for investors who are less familiar with the local rental market. The rent is also a good indicator of the condition and desirability of the property, which again is especially important for buyers who are unable to inspect it in person because they are not local, or they live overseas.
3. It saves time
Even assuming there is not a fixed tenancy term in place, you are required to give your tenants 60 days’ notice to leave the property – and, with uncertainty continuing over the future of Section 21, this may well increase further. If you wait until the property is vacant before marketing it, you are immediately adding two months to your timeline. With proper marketing, you can keep your options open, attracting investors who want tenants in place but also letting other buyers know that notice could be served if they have a mortgage offer accepted.
4. It’s less disruptive
Telling your tenants they need to leave their home is not a pleasant job, for them or for you. If you sell to another landlord, the tenancy agreement will carry on unchanged, but it’s understandable that your tenants might still be worried. It’s important to be honest and open with your tenants if you are planning to sell, so that the first they hear about it isn’t when an estate agent starts taking photos. It’s also wise to offer them first refusal to buy the property, and not just for the sake of politeness: I’ve seen a surprising number of cases where tenants have actually decided to make an offer.
5. You can get a better price
Despite what agents may tell you, in many cases you can get a higher offer from an investment buyer than somebody looking for their own home. This is certainly the case for properties that are geared up for rentals, such as HMOs, which would require significant work to turn back into a family home, but it’s also true of many properties in rental hot spots such as city centres and student areas, which have high demand from tenants but might also be less attractive for families looking for a quiet place to call home.
If you do want to sell with tenants in place, there are two vital things to bear in mind.
Firstly, respect the rights of your tenants. As I mentioned above, transparency is vital. But if you are considering the possibility of selling but haven’t yet made up your mind, there’s no need to worry your tenants unnecessarily. Rather than arranging valuations from estate agents in person, get desktop valuations. These will give you a good idea of the price you can expect to achieve before you make any decisions. Once you do decide to sell, speak to your tenants and reassure them that their rights will not be affected.
Remember that unless your tenancy agreement includes specific provisions, the tenant is not obliged to allow visits for valuations, viewings and so on. However, they are much more likely to be co-operative if you can show that you are acting with their interests in mind. Indeed, tenants can be a plus point during viewings: I have shown people around student properties where the students living there have been telling the prospective buyer how great the house is and how perfectly located and so on!
The second golden rule, which applies to any property, is to use the right route to sell. In this case that means choosing estate agents who are experienced in selling property with sitting tenants, and who have a good list of investors in their contact book. Choosing the right estate agent has historically been fairly hit or miss – you could have a look for the For Sale boards outside properties in your local area, or scroll through the property portals, but it’s hard to be objective.
At Movewise we analyse sales data to identify the agents that are best at selling particular properties, and then speak to them to make sure they are comfortable with selling to investors. Our partnership with the NRLA also allows us to offer properties directly to other landlords who have registered an interest in buying. By encouraging sales within the private rented sector, we hope to benefit everyone involved: sellers, buyers, and of course tenants.
To find out more about Movewise’s property sales management service, or to register your interest in buying or selling, visit nrla.org.uk/movewise.
