This guide is for landlords thinking about a sale of their tenanted property.
It’s been put together by the Directors of Property Solvers, a quick house buying company and express sale agency accredited.
With over 17 years of collective industry experience, we explore the best ways to get the outcome and price you want from the sale.
You may also be interested in our 2020 Landlords Report, aimed at helping buy-to-let property owners make better decisions moving forward.
It’s easy to see why selling a tenanted property may not be the best of ideas. Monthly rent rolling into your bank account and an appreciating asset – why would you want to give that up?
But the reality is very different and people often don’t realise there’s a lot more to owning and managing tenanted properties than meets the eye.
In this chapter, we look into why more people in 2020 are exploring selling a tenanted property.
These days, to simply ‘set and forget’ a rental property is no longer really an option.
There are often more hassles than many expect and landlords need to take a professional attitude.
As a result, below are some of the main reasons why more landlords are deciding to sell…
Although arguably better than investing in the stock market, rental property ownership is much riskier – especially if the landlord has taken on a lot of secured debt.
With all the regulation, costs and tax burdens highlighted below, it’s sometimes simply not worth the hassle.
There’s also wide evidence of more tenants falling into arrears. Eviction is subsequently much more difficult due to the large backlog of cases at the courts.
The removal of mortgage interest relief under Section 24 of the Finance (No. 2) Act 2015 took many landlords by surprise.
This grossly unfair legislation means that landlords can only offset 20% of their mortgage interest costs against their total rental receipts / revenues (in the form of a credit).
In short, unlike any other business, landlords are taxed on their profits.
At most risk are those in the higher and additional rate tax bracket. Some landlords are gradually being classed as higher rate taxpayers, even though they’re not earning extra income!
In the examples below, we assume that Landlord A and Landlord B own very similar properties. The market values are both £100,000, achieving a gross yield of 7.2% (£600 per calendar month in rent) at the point of the full effect of the legislation in 2020/21.
The above assumptions also do not factor non-mortgage interest costs such as voids, legitimate running expenses and other holding obligations. These overheads will still remain fully deductible against gross rental income (revenue).
Note that if you have zero or low mortgage debt against your rented property or own your property through a Limited Company, Section 24 is unlikely to impact you.
However, before you think about selling, we suggest approaching a professional accountant or tax advisor as every landlord’s situation is different.
The government has begun to roll out a number of regulatory measures aimed at improving quality standards across the private rented sector.
Examples include stricter energy efficiency requirements, selective licensing, compulsory electrical certifications (to be rolled out in 2020) and registration requirements at some point in the future.
Of course, raising standards should certainly be welcomed – especially given the growing evidence of ‘slumlording’. But most landlords will face higher costs to run their operations.
The stamp duty surcharge imposed in April 2016 and stricter mortgage borrowing requirements (under the Prudential Regulation Authority stress-testing criteria) have evidently slowed down the market.
Although nobody can predict when the market will crash, factors such as the affordability crisis and Brexit’s impact on house prices could mean that now is an opportune time to sell.
Remember, the notion that house prices double every 10 years, often cited by property ‘experts’ and uninformed media sources, is simply not true.
By and large, landlords are rent takers – not makers. Rents may end up rising due to limited market supply but this is not a dead cert.
Landlords should also be wary of affordability issues. Already taking up a significant share of people’s take-home pay, low wage inflation may mean that the risk of arrears could rise if rents are raised too much.
Besides that, landlords are generally disliked and vilified by certain sections of the media. Any increases will not do us any favours.
It’s never easy to predict by how much the Bank of England will next push rates up.
Even though any rises will be gradual, owning a rental property could end up being an unwanted cash cow – especially if the level of secured borrowings is high.
Landlords operating in the Local Housing Allowance (LHA) space are grappling with lower benefits receipts. This is making the financial viability of these rental properties less profitable.
Delays in processing Universal Credit housing benefit claims and under-resourced local authorities are also not helping matters.
To make things worse, many mortgage lenders often don’t want anything to do with these types of lets.
Your rented property may need significant refurbishment that you do not have the time, budget or inclination to do yourself.
Growing material and labour costs are further adding to the problem.
Sometimes it’s easier and more cost-effective to sell up ‘as is’ to avoid the stresses and hassles.
Our table in Chapter 4 weighs up the costs and benefits of selling an unrefurbished buy-to-let property with tenants ‘in situ’ versus spending the money to get it done up for resale.
Most experienced landlords would have had at least one bad tenant.
A trashed house, months of unpaid rent and a legal system that favours tenants can easily result in a decision to simply sell up.
The number of purpose-built developments made specifically for the rental sector has grown significantly in recent years.
Although mainly located in urban regions, smaller landlords may struggle to compete with the better standards offered by these schemes.
You may simply release capital to enjoy the benefits of the extra cash, diversify into other investments or fund your lifestyle.
Deciding whether to sell a buy-to-let property (or not) will ultimately depend on your own goals.
Some have accidentally become landlords, hate the experience and cannot wait to get rid of the property.
Others have their eye on the long-term financial gains and are willing to put up with the burdens of operating in the sector.
Wherever you find yourself, it’s always worth taking having a good think before making any decisions you’ll regret down the line…
You may have already made your mind up but, before thinking about putting your rental property on the market, it’s worth asking yourself the following questions:
If you have definitely made your mind up to sell, it’s now time to think about the best way to get maximise your chances of getting the best price.
In this chapter, we run through the main ways you can sell – namely: through an estate agent, online / offline auction house or fast house buyer.
With estate agents, although you are more likely to get a better price, the sales by and large take longer.
Auctions are good for attracting landlord buyers, as are fast house sale companies. With these latter two options, you should be prepared to accept a lower price.
However, you may find that your net losses may not be as bad as you first think.
Using an estate agent is a reasonably common way to sell a rented property.
Below are some of the tips that will help you on your way…
Make sure the estate agent has practical experience of selling tenanted properties. Ask for proof as they’re generally a bit more tricky to market.
The appointed agents should speak with the tenants and organise viewing times with prospective buyers.
It is worth noting the following statutory rights the tenant has:
In most cases, you should be prepared for the sale to take longer with an estate agent.
You’ll also have to deal with the uncertainty of not knowing when the sale will happen.
For this reason, the next two options may work out better…
These days, the auction process is more transparent and easier to navigate.
The number of online auction houses is also helping the growth of this sector.
Then there is the ‘modern method of auction’ – best described as a cross between an auction and estate agent sale.
Many auction buyers are landlords themselves and are looking to expand their portfolios.
Others may be professional investors looking for properties to refurbish and even regular buyers looking for a family home to do up themselves.
An emerging force in the property industry, fast house sale firms are professionals that buy for cash.
Using one of these firms does mean you should expect up to achieve up to 75% of the market value – depending on its condition.
The advantage is that your house will be sold in much shorter timeframes compared to estate agents and auctions.
Reputable firms will also pay your legal costs and, as it’s a direct sale, you won’t have to worry about paying any front or back-end commissions.
We go into more depth on this selling method in Chapter 6, including some information on our own quick sale service.
Once you have firmly decided to sell, you can do so with or without a tenant remaining in the property.
Much will depend on your own objectives and whether there’s a chance you could fetch more if the house was vacated and refurbished.
This chapter aims to help you make the right decision…
If you have had a tenant that has kept the property immaculately, you’re lucky. In most cases, landlords have to do some form of refurbishment works.
But, before deciding your next steps, it’s worth taking the time to reflect on your own objectives.
For instance, you may choose to sell the rental property ‘as is’.
Here, you can expect to sell to other landlords or owner occupiers that don’t mind rolling their sleeves up to do the work.
The tenants at the property may also want to stay on, in which case it may make more sense to sell to another landlord.
The tenant is happy as they don’t have to worry about finding another home and you will get rent up to the date of completion.
See our comments on Selling to Another Landlord towards the bottom of Chapter 5.
On the other hand, if you have the time, money and energy to go ahead with the refurbishment, you’re more likely to sell to a wider pool of buyers and get a better price.
Here, it’s a matter of seeing how much extra value you’ll create by refurbishing and the losses you’ll incur whilst the property is empty.
Remember you will not be getting any rent and have to wait some months for the property to sell.
Our calculator below helps you weigh up your options…
* Ensure you understand sold house prices in the local neighbourhood and do not rely on estate agent estimations (see our post on house valuation for some guidance). Otherwise, you’ll probably end up waiting longer for the sale to happen.
How you deal with the sale of a rented property will depend on whether you have a tenant already in the property or not.
In this chapter, we outline some of the common scenarios you may face and how to deal with them in the best way.
It may be the case that the tenant is happy to leave or has already found another place.
Other landlords may have planned for the sale the moment the tenant leaves, so things usually work out well.
If none of the above applies, be prepared to have a frank and open discussion with the tenant.
We would also suggest taking the following suggestions on board:
Assuming the tenant has comes to terms with the sale and agrees to be cooperative, it’s worth having another meeting to explain that you will be putting the house on the market and arranging viewings.
This can be a tricky situation, especially as they are still paying you rent and actually doing you a favour.
Remember that, under Common Law, tenants are entitled to live in quiet enjoyment up to the point when the tenancy is legally terminated;
It’s easy to see why tenants wouldn’t be comfortable with photos of their belongings being displayed online and random strangers coming into their home.
Below are some tips on how you can get through this process without causing too much hassle:
If you are using an estate agent or auction house, viewings will be required. If you are not able to accommodate, you may have to accept a lower offer.
Quick house sale companies often consider buying without viewing the property.
This is likely to be a more complex situation, especially if the tenant doesn’t want to leave.
In most cases, as long as you are fair and decent, the tenant will be on your side.
If not, before even thinking about starting an eviction process, it’s always worth seeing if you can sit down with them to figure things out:
Below are some pointers:
Remember, if they wish to formally surrender their tenancy and vacate, they must give you 1 month’s notice. It is good to have this notice in your possession to put your mind at ease and get the sale going.
Things can get challenging when the tenant doesn’t want to leave and starts to play games.
The tell-tale signs are no responses to text messages, emails, phone calls or letters.
As there is sometimes a genuine reason that would explain why people are ignoring you (illness, bereavement or other harrowing life events), you may choose to be a little patient.
Without being too intrusive or trespassing, also to try and speak with neighbours to see if there is a legitimate reason for the tenant not getting in touch.
But sooner or later, you may have to start some form of legal action to gain possession of the property.
Before engaging in costly eviction procedures, we would suggest writing a letter explaining your side of the story.
Explain that you really do not want to start the process as there will be costs involved. Eviction will also possibly cause damage to their credit rating. In short, encourage them to work with you.
Failing that, you’ll probably have to start eviction proceedings.
The Housing Act 1988 stipulates two main ways in which landlords can regain possession of their property: Section 8 and Section 21.
We summarised the two different processes below…
Unless you have experience of dealing with the situation, we would advise seeking qualified suitable legal advice or use a growing number of specialist services.
As the landlord, you have the legal right to take possession of the property.
To do this, you will need to serve a Section 21 notice* which confirms that you want the tenants to leave.
You do not need to explain why, but 2 months full notice must be given.
This means that if the date of the tenancy agreement ends on 1st December, and you wish to take possession on that date, the notice must be received on 1st October.
Always send this via recorded delivery and email so that you have proof it was sent.
Also, fill in a certification of service form (N215) which will confirm you have followed the correct procedures.
Note the above will apply even when the tenancy is periodic (i.e. when the tenancy continues on a ‘rolling’ basis after the first term expires).
But in this scenario, you should allow for the further time covered by the rent for the tenant to stay.
If you haven’t complied with your obligations as a landlord, you will not be able to serve a Section 21. For example, if the tenancy started after April 2007 and you did not place the deposit in a custodial scheme, your case will be rejected.
Once a Section 21 notice has been served under a fixed term Assured Shorthold Tenancy (AST) or periodic AST, possession proceedings must be started within 6 months from the date the notice was given.
If you do not do this, the possession notice could become invalid. You will then have to start the process again from scratch.
*Note that, although not formally enacted, there currently discussions to abolish Section 21.
This is used to gain possession of a property during a tenancy term due to a breach of contract by the tenant.
There are 17 grounds of possession listed in this legislation, but it’s usually used when there are two or more months of rental arrears.
Many see Section 8 notices as a ‘last resort’ as it can make things complicated if you have a difficult tenant and things have to go to court.
Even if there is a breach, many legal experts suggest serving a Section 21 notice as possession is mandatory and there is less chance of delays.
Serving a Section 8 may be a better option if you haven’t complied with the deposit scheme legislation.
Sometimes it’s a good idea to serve both Section 8 and 21 notices but much will depend on your individual case. We would suggest seeking professional advice before acting.
Remember it can be risky to sell a property if there’s no guarantee of vacant possession before exchange of contracts. You will need to demonstrate proof (i.e. that the tenant has officially vacated and left keys).
For this reason, it’s sometimes better to wait until there is clear evidence that the tenant has left the property before you sell. The buyer will then be assured that full possession can be obtained on completion without any issues.
If you do decide to sell to another landlord with a tenant in situ, remember that you’re likely to be dealing with a more savvy buyer.
Buy-to-let investors, for example, are likely to take a detailed look at key fundamentals surrounding the property such as gross/net yield and return on investment (ROI). Also, remember that many will factor in the extra risks of operating in the space as well.
In order of priority, you’re likely to be asked for the following (the more you can provide, the better):
Buyers will seek assurance from their solicitor that the transition will be smooth. Your solicitor should check that the buyer has the right kind of finance (specifically for buy-to-let) in place.
Often, it makes sense for completion to fall on the same date that the rent is due. This means that there are no rental apportionments to deal with and the transition between you and the new landlord is much simpler.
Note that if the payments are made to a lettings agent, with whom the buyer wishes to remain with, they should be notified. If not, the buyer’s conveyancing solicitor will also need a letter of authority from the seller that the tenant will pay rent to the new landlord buyer.
The buyer’s solicitor should make sure the Section 48 notice is correctly served. This means the new landlord must inform the tenants in situ that the property interests have been legally passed over in line with Section 3 of the Landlord and Tenant Act 1985.
Note also that any existing tenancy agreement will remain valid under your name, even though there is a new owner.
Continuing from Chapter 3, where we explained the different ways you can sell your property, this final chapter explores how fast house sale companies work.
Further down is some information about the Property Solvers service.
We can offer various quick sale options for you to achieve between 75% and 100% of your rental property’s value.
Although private house sales have always existed in some form, professional ‘quick sale’ companies really gained traction in the early 2000s.
Homeowners began to see the benefits of selling directly to active buyers and not having to deal with estate agent and auction company middlemen.
The essential advantage is that you’re usually dealing with serious buyers. In most cases, you can expect to achieve a sale between 7 and 28 days.
You’ll also not have to worry about legal fees or estate agency costs.
You’ll probably have to take a hit on the price – something in the region of between 15% and 30% depending on its condition.
Of course, it’s natural to immediately dismiss these companies as ‘scam artists’ and ‘sharks’, but…
Remember that you are in the driving seat. The firm should never oblige you or place any other pressure to sell.
Established in 2006, Property Solvers are a team of quick house sale experts that now offer specific solutions depending on the vendor’s circumstances.
See our introductory video to how our service works:
The Directors at Property Solvers have been professional landlords since 2003 and understand that sometimes a swift and efficient sale may be exactly what you’re looking for.
With our Quick Cash Sale, we can complete on the sale in 7 to 28 days. We can also exchange contracts in as little as 24 hours where required.
Below are some of the other benefits of using this service:
Below is a simple flow chart which briefly runs through our process when speaking with rented property owners…
We appreciate that not everyone needs to sell within such short timeframes.
In response to growing demand, we developed a separate Express Sale Estate Agency service to help those clients that want a reasonably quick sale at the full market value.
We use a ‘realistic pricing model’ to sell. This helps us generate a secure offer on your property in under 28 days.
We base our valuations on detailed metrics based on the current state of the market plus our expertise developed over 17 years in the ‘we buy any house’ industry.
Below are some of the key benefits of using this service:
Please note that there are still some of the risks that come with an open market sale. We are not in control of the process in the same we would be with a cash sale.
Buyers could delay the sale or even pull out. The actual sale could take about 3 months to complete, but much would very much depend on the buyer.
Nonetheless, we do everything on our side to speed the process and guarantee a more efficient service than high street or online estate agents.
Property Solvers freephone line is open 24 hours, 7 days a week on 0800 044 3733. Our representatives will take down your basic details for one of our Area Managers to get in touch.
We’re waiting to help…