Marketing it as a tenanted investment or a vacant property?
If you own a buy-to-let property and are considering selling it you’re presented with two possibilities. You can market it as a tenanted investment or a vacant property. Selling as vacant often appeals to a larger buyer demographic as you’re not solely targeting investors. However, depending on your location, the price might be more attractive for a tenanted property.
Typically, in areas where properties are scarce, there’s often little difference in cost between the two options. Your estate agent can guide you on whether there’s a substantial disparity between the prices achievable from an investor versus an owner-occupier.
Let’s look at what you need to consider.
Weighing up tax implications
Investment properties are generally subject to Capital Gains Tax (CGT). Depending on your circumstances, allowances and exemptions might be applicable to lessen this liability. Beware that CGT could be up to 28% of your investment’s value increase, impacting your decision to sell due to the reduction in net proceeds post-sale.
If you’ve made capital improvements during your ownership, some of the tax liability might be offset, including applying your annual CGT allowance.
Evaluating your financial position
If your property is mortgaged, early sale penalties may apply if you’re still within the fixed term of your mortgage product. Remember, conveyancing usually takes a couple of months post-offer acceptance, and only upon sale completion will you redeem the mortgage.
Understanding your tenancy agreement
Your tenancy agreement is a legal contract between you (the landlord) and the tenant. Selling the property doesn’t necessitate tenant eviction – a new landlord can take over. Most contracts allow property viewing during the final one or two months of the tenancy – check if this is stipulated in your agreement.
Tenants have the ‘quiet enjoyment’ right during the tenancy, meaning unauthorised access for viewings isn’t permissible. Negotiating reasonable access with your tenant might be possible if you’re not nearing the tenancy end and the contract doesn’t allow viewings.
The agreement should specify the notice period for reclaiming your property. A break clause might permit serving notice before the agreement ends, but without one, you might have to wait until the tenancy concludes. For properties let on an Assured Shorthold tenancy agreement, tenants have a minimum six-month occupation right.
Engaging with your tenant is a crucial first step
The first conversation should be with your tenant if you’re considering selling your property as an investment. Providing reassurance and clear communication about the process can lead to a more cooperative and understanding transition.
Sometimes, they might even be interested in purchasing the property themselves. This could save you both time and costs while eliminating the need for putting the property on the market.
Multiple benefits of selling with a tenant in situ
As a landlord, there are numerous advantages to selling a property with a tenant already in place. Firstly, you can maintain your rental income until the sale is completed. Secondly, the new owner can benefit from immediate rental income starting from day one.
If the sale falls through for any unforeseen reason, the tenant’s income still provides a safety net. Good tenants can be hard to come by, so a reliable tenant can be a valuable asset if the buyer is seeking an investment.
A smoother investment sale transaction experience
Often, investment buyers have more experience in property transactions. This can make the process of selling a tenanted property smoother and more efficient. Investment sales are typically information-based rather than emotionally driven, which could lead to quicker conclusions.
Additional considerations in letting
Selling a property that’s currently let does come with additional considerations. For example, if you’ve paid an agent a commission upfront for finding the tenant, what happens to this money if you sell the property? Negotiating terms to recoup this commission from the buyer for the remainder of the tenancy post-sale could be possible.
Furnished properties and tenant deposits
If the property has been let furnished, it’s important to provide the buyer with an inventory of items and agree on a price. If you’re selling a tenanted and furnished property, the practical approach would involve including the furniture in the sale. The tenant’s deposit will also need to be transferred to the new owner.
Importance of correct tenancy paperwork
An investment purchaser will be keen to ensure that all necessary tenancy paperwork is in place. This includes evidence of the tenant’s right to rent, a signed tenancy agreement outlining the terms, certificates proving safe gas and electric installations, confirmation that the deposit has been properly protected within the right timeframes and details of any legal notices served or outstanding repairs.
Want to explore your 2024 buy-to-let opportunities?
Whether you’re planning to expand your portfolio or are just starting out as a landlord, we have the insights to assist you. Contact our team for any questions or enquiries.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
