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Landlord Tips should you sell your rental property with tenants in situ or not

Landlords – should you sell your rental property with tenants in situ or not?

Posted on 2021-07-15

If you’re thinking of selling your rental property, it’s likely that you will be currently facing a dilemma: to go ahead and sell with your tenant in place or evict them before putting on the market?

To make your decision easier, here’s some advice below to allow you to make the right choice.

 

Work out why you’re selling

First things first, you need to work out why you’re putting your rental home on the market. Having a very clear vision of why it is you’re selling up is an excellent starting point, as this can help you to plan the next steps. You can’t really analyse the pros and cons of selling your property tenanted until you work out your strategy. 

You might be selling because you want to exit the market for good, or you might merely be thinking of cutting your buy-to-let portfolio to make it easier to manage or more profitable.

 Your reasons for deciding to sell might not be the same as another landlord’s. However, by keeping the rationale behind selling as the focal point, you may find this helps you to begin to work out whether you want to evict your current tenant or keep them in the property.

 Some possible reasons for selling are laid out below:

  • Selling because you want to reduce your portfolio, for workload or financial reasons.
  • Selling to raise capital.
  • Selling because you no longer want to be a landlord.

 

Know your local market

The current state of your local market will go a long way to determining how much you get for your rental home. If the market is thriving, with high demand for all types of homes, it increases your chances of selling quickly, easily and for the best possible price. But if it’s a market struggling with low demand and falling asking prices, you might want to think again.

If the capital gains made on your rental property aren’t going to be anything to write home about, or aren’t there at all, you might want to wait until the market is in a better state.

Of course, having a tenant in situ or not could also have a bearing. It could be the case that, in the location you’re selling, a vacant property will go for more money. Equally, people may be willing to pay more for the stability and security provided by sitting tenants and the instant rental income they offer.

It’s also important to know your local market from a demand point of view, and who you’re likely to be selling to. If the home is in a popular rental hotspot – perhaps close to a university or near lots of bars and restaurants – you could find it easier to sell on to another landlord.

By contrast, if your rental property is the sole one on a street made up of many owner-occupiers, it could be easier to sell to someone who wants to make the home their own rather than letting it out. If that’s the case, selling with sitting tenants will be a no-go.


Work out who you’re selling to

As stated above, what happens with your current tenants will depend on who you are selling the property to. 

The buyer type is likely to shape your decision as to whether you seek to sell your property empty or sell it tenanted. If, for example, you are selling to another landlord or property investor who is happy to take on your tenants, this could potentially be easier and ensure you receive rental income right up until you sell the property. 

However, on the downside, you could achieve a lower price for the property because it’s tenanted. This isn’t necessarily the case, though – a high yielding property, in the right scenario, could achieve a higher value than on the open market.


How to sell to another landlord

To make your home attractive to another landlord, it’s vitally important that you work out what the appeal of the property is for investors. For example, investment buyers will want to know what the yield is - a crucial piece of information to allow them to work out how much return they’ll get for their investment.

You should make clear how long your tenants have been in the property, too. The longer, the better, in this case, as you can prove to landlords that steady long-term rental income is a must with this property.

Screenshot 2021 07 20 141910

Additionally, you should zone in on any recent updates you’ve made, such as adding a new boiler, updating the kitchen or investing in double glazing, as this shows you have made improvements which could increase its rental value. Plus, it’s one less issue for a new owner to have to worry about.

While Rightmove, Zoopla, OnTheMarket and other major property sites are typically the first port of call for sellers, as a landlord you may find it useful to use a dedicated specialist landlord sales portal, where the target audience will be far more suitable and focused.

 

How to sell to a non-landlord or investor

If you put your property up for sale – particularly if this done through one of the conventional portals – you are likely to receive interest from prospective purchasers who are not landlords or investors.

In this case, you will not be able to include your tenants as part of the package – unless the buyer suddenly decides they want to enter the PRS – so you will need to ask them to leave. The new buyer is likely to want to move in as soon as the sale is completed, so time will be at a premium.

To evict your tenants, you will need to serve a Section 21 notice, and must currently provide tenants with four months' notice before starting possession proceedings (except for the most serious cases of anti-social behaviour, domestic abuse, false statements and long-term rent arrears).

 Additionally, landlords seeking an eviction now have to provide any relevant information on how their tenant has been affected by the pandemic. You can see the full current guidance on evictions here.

With this in mind, selling with sitting tenants at this present moment is likely to prove considerably less complicated.

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Communicate with your tenants regularly

Whatever you decide, it can be a wise move to talk to your tenants directly. If you are open and honest with them about the sale, you may even discover that they are interested in buying the property from you.

This, of course, would save you the hassle of finding a buyer and also removes the issue of evicting them (currently very difficult anyway) and potentially losing several months’ rent during the sale process.

If your tenants aren’t interested or lack the means to buy the home from you, as is likely to be the reality in most cases, you may find they are willing to help smooth the sale in exchange for a cut in rent. This could involve negotiating with them to enable you to refurbish the property (if it’s suffered from lots of wear and tear) and ensure it’s in a presentable condition for viewings. You’ll also need your tenants’ permission to carry out viewings, so if you do decide to sell you will need them on side.

It’s important to be aware, though, that tenants have rights in this situation. Even if they agree to help you out, they could go back on this agreement at any time and the law would be on their side with regards to their right to ‘quiet enjoyment’ of the property.

 

Other things to consider

It’s important to work out how quickly you want to sell. If you want, or need to, sell fast, the best way at present would be to try and sell to a fellow landlord or investor with the tenants remaining in place. With tenants in situ, you are selling an attractive proposition, assuming the property is achieving a reasonable yield and the tenants are paying their rent regularly and on-time.

On the other hand, while selling a vacant property can mean you’re losing out on monthly revenue from the rent, you do open up the property to the whole home buying market. This could increase your chances of selling as your home is exposed to a much wider range of potential buyers.

 

A final decision

In the end, your decision will rest on why you’re selling and whether you want an easier sale – for a potentially lower price – or something more difficult for a potentially higher price. You should think carefully about the financial implications at each stage to help you make your choice.

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