Benefits of selling a property portfolio
August 22, 2018
When a landlord decides to exit their property investments, they have the choice of selling each property piecemeal or selling their entire portfolio in one hit. As with anything, there are pros and cons of both and it is important to understand these when making your decision as to which option you are going to follow. The “true” costs of selling are an important factor, so numbers should be crunched to fully understand each option, rather than just considering headline commissions.
If you sell off each property individually, you will incur estate agent fees - typically 1% to 2% of the sale price - for each property that is sold. You also have to endure the undoubted stress of numerous individual property sales over an extended time frame dealing with a range of different solicitors! It’s worth putting a price on this, as it can be stressful, not to mention all the documents you have to find and keep control of, and the uncertainty of knowing if each sale will complete. There are as many opportunities for a chain break-down as there are the number of properties you are selling.
If you are selling your properties as tenanted, then that is less financially risky than selling them as “vacant possession” as you will not suffer a void period while the sale is waiting to complete. Some investors like to sell off one property a year to take advantage of capital gains allowances, and that is probably the most compelling reason to sell a portfolio piecemeal.
The other option is to sell your entire portfolio in one hit. This is particularly attractive if you have properties located all over the country where you may not be fully up to speed with the market and/or which estate agent is dominant in the local area. There are a number of advantages to this involving time and cost. If you sell an entire portfolio as a going concern, that is one large transaction over one timeframe, not multiple transactions over an extended timeframe. Very importantly, as you are selling direct to another investor, and there is no chain involved, that removes from the equation the single biggest reason why property sales in the UK fail.
It is generally believed to be an industry standard that approximately a third of property transactions in the UK do not reach completion. Some research undertaken by Which? found that, when a sale collapses, vendors find themselves substantially out of pocket due to unrecovered conveyancing, survey, mortgage valuation and brokerage costs. Their research concluded that this averaged around £2.5K per failed transaction. So this is another good reason to consider a portfolio sale rather than selling each property individually through a High Street agent.
At Vesta, we believe that the timing for portfolio sales is entering a golden phase. Many institutional investors and funds are coming into the private rented sector looking to buy entire tenanted portfolios. In fact, they are actually being encouraged by the Government to do so. Vesta is cultivating these large corporates to use our platform as part of their acquisitions strategy, and we already have some big key players on board.
We can target different parts of the market by listing the portfolio in different ways, e.g. a master portfolio for all properties, a combination of smaller portfolios, and individual units. This means we test the full spectrum of the investment market, from smaller BTL landlords looking to buy a single unit, to high net worth individuals (HNWIs), property companies, family offices or institutions looking for bigger ways into the PRS.
Each type of buyer has their own investment criteria (i.e. institutions tend to prefer relatively new properties and are looking at spending £20M+) so it depends on the size and make-up of the portfolio. The main thing to note is that by listing with Vesta you target all areas of the property market, enhancing the chance of getting a sale.
The cost in fees can also be significantly less. Vesta charges a flat fee per unit (house or apartment), as opposed to commissions; our standard fee is £900 (inclusive of VAT) payable upfront per unit but we’re also trialling some pay later options for those who want to only pay upon success. This is usually very price competitive versus commissions.
Vesta is entirely focused on selling into the investor market, including selling with tenants in place. This preserves rental income up until completion, supports the ongoing servicing of any debt, and allows the tenant to stay in their home. We like to say that it creates a “triple win” situation - as the seller gets a sale with no loss of income, the buyer acquires a property with income from day one of ownership, and the tenant remains in the property, with the tenancy passing seamlessly to the new landlord owner.
If we sell as a complete portfolio, then it’s easier and less stressful for the vendor as they deal with a single buyer. It’s fair to say that portfolio buyers typically look for a discount to vacant possession value, which is another cost to consider, but so far we’ve sold properties at less than a 4% discount to vacant possession value. It really depends on the type of portfolio and the attractiveness of it. However, by doing a portfolio sale, it usually results in lower transaction costs (conveyancing) and time. So it depends on what the vendor is looking for.
If you are thinking of selling up your entire portfolio, please get in touch with our friendly team who can advise you on the best strategy for achieving the outcome you require in the optimum time frame for your circumstances.