I’m thinking about selling my property, should I issue notice to my tenant or attempt to sell with them in place?
It’s an interesting time at the moment, with lots of landlords unsure about how legislative changes are going to impact them in real time.
There’s plenty of talk about worst case scenarios and riding the storm, but until the changes bed in and until people start to see the impact on their bottom line, it’s difficult to know what to do for the best.
If you are thinking about selling your tenanted property, you are in one of the trickiest situations, as you don’t only have your situation to consider, you are rightly thinking about the lives of your tenants too. After all, you signed a contract with them, handing over your property for a set period of time, just because your circumstances may have changed, it’s not the nicest move to them to force it upon them too.
But you may not have to make this tricky decision, there is always a solution, you just have to work out the best option to suit everyone.
The property market is currently squeezed to the point of bursting, simply there are not enough houses to meet the needs of the house hunters. There are more residential buyers in the market than BTL investors currently, and you are possibly more likely to sell your property quickly if you were to put it on the open market. Properties that were rented are always popular, as buyers are reassured that key elements, such as the boiler, are safe thanks to regular gas safety checks, and generally they are kept to a neutral décor, which appeals to a buyer.
Of course, with this option you do have to consider the fate of your tenant. According to recent research by Homelet, landlords looking to sell up lose around £500m worth of rental income by asking their tenants to leave while they wait for a property to sell. Historically, landlords have been encouraged to try to sell their properties tenant free, but the research suggests that this method could lose the average private landlord anything from £2,757 to £5,514, just while they wait for a property to sell! A pricey problem.
One element to consider if you are looking at selling is ‘location, location, location’. If your property is in an area with an Article 4 direction in place, this changes the matter completely. An article 4 direction on an area slams the breaks on any development rights within the location, and that includes changing the residential status of a property. If you own an HMO in an article 4 area, there is very little chance that any other HMOs will be given the go ahead in the region, so your property, with its valuable HMO status, will be like gold dust. If the property is sold as a private family residence, it will lose its HMO status and it’s unlikely to get it back whilst article 4 is in place. In this instance, savvy investors would be keen to get their hands on your rare property, and may even be prepared to pay a little over the odds for it.
Similarly, consider the properties that surround yours. If you are in a quiet residential road, primarily filled with family homes, it is likely that your property will be snapped up by a similar buyer looking for a ‘forever home.’ However, if your property is surrounded by rented flats filled with young professionals, with the portals showing a busy churn of changing tenants, it might suggest that you are more in a rental area. If this is the case, it may be the sort of area landlords are looking to invest.
Do bear in mind, if you are looking to sell to another landlord, they are likely to want to run their own referencing check on your tenants. Cast your mind back to your own checks, and think if anything in the tenant’s life has changed that you know of. Whilst they can obviously afford to pay the rent, from a new-buyer-calculations point of view, if the figures don’t add up, these checks could mean the difference between a sale or a pass.
Work with your tenant – whatever the plan
Whatever you decided to do, the main thing you absolutely must do is be upfront and honest with your tenant.
If you do decide to ask your tenant to leave before you sell, it’s a good idea open about the reason why. Don’t let your tenant feel that it is anything they have done that has caused them being asked to leave, and let them know that you are prepared to give them a great reference. Keeping on good terms with your tenant now, especially if you are going to have to be holding viewings at the property and will need their support.
It’s also a nice idea to offer your tenant the first opportunity to buy the property. You never know, they may be in a financial situation to do so, and it would save all the hassle of viewings and removals!
If you plan to sell with your tenant in place, you still need to let them know exactly what is going on. They may not be happy with the idea of a new landlord coming in and want to discuss their options with you.
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