Thinking about exiting your investments?
May 17, 2018
We hope you have been enjoying our series of blogs documenting the life-cycle of a landlord.
Most experienced landlords will tell you that, when they started out, the end seemed in the far off future, most landlords holding their properties for 20 to 25 years.
However, one thing that can be guaranteed in property is that time is going to pass, and, before they knew it, they were entering into the “exit” phase, needing to end their landlord career.
With most BTL mortgages typically being taken out for 25 years, the end of the mortgage term will mean you will have to consider if you are going to sell the property or find a new mortgage to redeem the existing one.
A popular strategy for landlords with mortgages, is to sell off half of their portfolio and use any equity gains to pay off the mortgages on the other half, meaning they can keep their properties as income generators into their retirement.
Ideally, when you started out, you should have had an exit strategy in mind, such as simply selling the property and paying off any outstanding mortgage debt or passing your properties on to your children via your estate.
Capital gains liability will be a significant consideration when exiting your investments, and we recommend that professional tax advice is sought in regards to how to mitigate this.
Whatever you decide, one thing you can be 100% sure of is that the day will come when you need to exit.
You may have tenants living in your property who have been there for many years and have made it their home. Many landlords will take this into account when deciding the sales channel and method for disposal of the asset.
Clearly, you want to achieve the best possible price for your property and most estate agents will tell you that you need to sell with vacant possession in order for the property to attract the owner/occupier demographic.
This means a number of things:
- Serving notice on your tenants
- Agreeing with them to allow viewings - which legally they are not obliged to do
- Undertaking any remedial, maintenance, and refurbishment works to bring the property up to standard
It is worth noting that properties with tenants in situ often do not “show” as well as an empty and clean property, and most estate agents will advise you to hold off on marketing the property until the tenants have left. But therein lies an issue. Once the tenants have left, you will not have any rental income coming in.
The BBC recently stated that, on average, it takes 10 months to sell a property in the UK, from first putting it up for sale to completion day.
- Mortgage payments, if you have a mortgage
- Council tax
- Standing utilities
- Increased insurance premium due to the property being empty
So whilst you might achieve a higher sale price, it could well be eaten into by the above costs, not to mention estate agents fees - typically 2% to 3% of the sale price.
Then there is the stress of waiting for a sale to complete, and it’s definitely worth putting a price on that, as it can be quite considerable bearing in mind that, until exchange of contracts, the sale is not a done deal. Around 20% of property transactions fall out of bed in the UK each year for a variety of reasons, the main ones being that the buyer struggles to get mortgage finance or they simply change their mind.
The other option is to sell your property with tenants in situ. Clearly, this will mean selling to another landlord or professional property buyer who may not be looking to pay the “retail” price.
In this case the buyer will purchase the tenanted property subject to the existing tenancy agreement. The tenant will remain in occupation, and will pay rent to the buyer after completion of the sale. With this option you have no need to serve notice on your tenants, no voids, no other bills such as council tax, no need to clear and clean the property prior to completion as you are selling it as a “going concern”.
It is far less hassle all round than selling with vacant possession, as there is always the possibility that the tenants may stop paying their rent or refuse to leave, and you may incur costs in getting them evicted. These can range from a few hundred pounds to a few thousand. Assuming you have dealt with any repair or maintenance issues reported by the tenant, there is also no need for the capital outlay of remedial work or refurbishment to prepare it for the market, that you may not re-coup via the sale price.
Furthermore, because our platform is frequented by landlords, investors, and funds looking to buy tenanted properties, there is a far greater chance at achieving a fast sale at a good price.
Many of our buyers will likely be cash purchases, meaning that you do not have to wait for mortgage offers and the drawing down of funds.
These buyers can act more quickly and with more certainty, as they are not relying on a bank valuation or bank finance.
Vesta are revolutionising the way landlords buy and sell tenanted property, creating a unique marketplace that will attract qualified buyers who are buying for business purposes, and not emotionally attached to the property. This makes the whole process much smoother and more business-like, as the buyers are simply looking for returns, not somewhere to live and bring up their family.
All the emotion and hassle is stripped out of the process, and it creates a triple win situation - you win, the buyer wins, and the tenants win as they can stay in the property they call home.
If you want to sell your tenanted property on the Vesta platform, simply contact us and we will start the ball rolling. We can liaise with your tenants to let them know that the property is being sold, but they can remain in their home if they choose.
We will market your property to our landlord database and our institutional investor contacts, ensuring that your property is seen by as many prospective purchasers as possible, ensuring you achieve the best possible sale price.
Just get in touch with our friendly team who will be more than happy to assist you and support you throughout the sale - Sell your property.