Landlords tend to shy away from the idea of selling rental property with tenants in situ because there are assumptions that it is “complicated” or that it restricts your buyer market. There is surprisingly very little information available online about the process of selling property with tenants and this may leave landlords feeling insecure.
Since launching our sales department in December 2013, Belvoir Peterborough have successfully completed over 40 re-sales of tenanted property. Below we address the most common misconceptions people have about the process of selling an occupied rental roperty.
“Selling in situ restricts your buyer market”
One of the biggest misconceptions is that if you sell while the property is tenanted you MUST sell to an investor, which restricts your buyer audience. The only time your audience would be restricted to just investors is if your tenants are on a fixed term Assured Shorthold Tenancy because they are protected from eviction throughout the tenancy term.
If your tenants are on a periodic tenancy, it is possible to serve them 60 days notice at any point, meaning you could open up the market to both investors and homebuyers. If your buyer is an owner-occupier, you can serve notice to the tenants part way through the sales process in order to gain vacant possession ready for completion.
“It is harder to find a buyer for an occupied property”
If you are targeting a specific buyer market such as investors, you can carefully target the marketing to reach your potential audience. Belvoir markets directly to our extensive investor database using email, direct mail and open events in order to reach prospective buyers.
According to research carried out by Countrywide Group, 11% of all buy to let properties bought in 2014 had tenants in situ, which is a fourfold increase since 2008. It is possible the popularity of buying with tenants in situ is increasing as it is a good way of maximising return on investment; the seller still receives rent up until completion and the buyer saves money advertising for new tenants.
“It takes longer to sell a property with tenants in situ”
The average time its takes to sell a property is 65 days according to Rightmove. If you are serving notice to sell with vacant possession this will lengthen the process because notice has to be 60 days at the minimum.
The quickest way of selling tenant-occupied property is to another investor who wants to inherit the tenants. At Belvoir we have a database of investors looking to buy, so once a property goes on the market, there is an interested audience that we can market to and this speeds up finding a buyer.
“Selling with tenants in situ affects the selling price”
Sometimes vendors are concerned that the property will sell for less than it would with vacant possession. At Belvoir the property is valued according to current marketing conditions regardless of its possession status and the asking price will reflect current market trends.
Just like with any sale, potential buyers may offer more or less than the asking price according to market conditions. Investors will consider the price carefully to ensure they are getting the best return.
Some investors will be happy to pay the asking price, as they recognise that a property with tenants is an asset. An occupied property means the buyer purchases a ready-made investment, with rent from day one and no need to find new tenants. Depending on the demand in the area, it is possible for properties with tenants in situ to trade at a premium.
“It is more risky to sell with tenants in situ”
Selling with tenants in situ to another investor is probably the lowest risk way of selling your investment property. If you are selling from investor to another investor there is no chain which means the only way the sale will fall through is if the buyer withdraws for some reason.
Potential buyers who are owner occupiers pose slightly more risk as you would lose out on rental income if you serve notice and then the sale falls through. To mitigate this risk the Belvoir Sales Team would advise not to serve notice on your tenants until the prospective buyer has instructed a survey. Investing in a survey indicates the buyer is committed and likely to go through with the sale.
“The sales process is more complicated than a standard sale”
Selling a property with tenants in situ is very similar to a standard sales process. When marketing the property is has to be made clear that there are tenants currently in situ and often investment figures are included in marketing details to capture the attention of the investor market.
Once an offer is accepted, during the conveyancing process you must show the current tenancy agreement to the buyer’s solicitors and also provide details of where the tenancy deposit is kept. Once the sale is completed the buyer must issue a formal letter informing the tenants of a change of landlord.
Case Study 1: “Hallfields Lane”, Peterborough
Hallfields Lane is a 3 bedroom mid terrace house in a popular residential area of Peterborough. It was sold through Belvoir Sales with tenants in situ in September 2015. The owner sold to an investor and the tenants stayed after the sale completed.
The property sold for £134,000 which was just under the asking price and higher than other properties that had sold on the same street in 2015. As a comparison, 71 Hallfields Lane; a larger, semi detached property, sold in March 2015 for £129,000.
Asking price: £135,000
Price achieved: £134,000
Time from instruction to completion: 20 weeks
Case Study 2: “Circus Drive”, Cambridge
Circus Drive is a five bedroom, licenced House of Multiple occupation on a development in the north of Cambridge. This property was sold through Belvoir sales in November 2015. The owner sold to an investor and the tenants stayed in the property.
The property sold for £15,000 above the asking price and £20,000 more than another very similar property sold this year: 29 Circus Drive sold in July 2015 for £420,000 and is also a 5 bedroom HMO.
Asking price: £425,000
Price ahcieved: £440,000
Time from instruction to completion: 15 weeks
Selling in situ is the ideal solution for landlords who are looking to exit buy to let and would prefer to receive a rental income during this process. Equally, it makes the most sense from a buyer perspective as you purchase a ready-made investment complete with tenants, property history and tenancy agreements in place.
If you would like to know more about our Selling in Situ service please email firstname.lastname@example.org