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Marketing a Property with Tenants?
At times, selling a property with existing tenants, without giving them notice to leave, might be more straightforward. Numerous property investors are on the hunt for properties with current tenants at UK auctions.
Putting a tenanted property up for public auction can be a favorable strategy. While the selling price of a tenanted home may not match that of a vacant one, there’s a substantial interest for such properties at auctions. The reason tenanted properties might fetch a lower price is that they appeal primarily to investors, while an empty property attracts a broader range of buyers, including those looking to reside in it themselves.
While many are accustomed to the conventional method of selling a vacant property via an estate agent, a tenanted property can also follow the same path. The challenge lies in the estate agent’s capacity to secure a property investor willing to offer a reasonable amount.
Yet, some property owners face hurdles when trying to sell tenanted properties through estate agents or direct methods. A common setback is the potential of the sale collapsing (or the negotiation of a reduced price) since the contract of sale is typically exclusive to a single buyer. Such a disruption can arise for various reasons, including the investor finding a more lucrative deal elsewhere.
Benefits of Auctioning:
✔ Achieve the best market price
✔ Eliminate the risk of deals falling apart
✔ Applicable to all property types
Considering the unpredictability of relying on a singular buyer, public auctions present a compelling alternative to the traditional estate agent sale. Auctions empower sellers by offering their property to a wide audience, ensuring a competitive price and swift sale.
When contemplating the sale of a tenanted property at auction, it’s crucial to understand what potential investors are scouting for. Here are the four main factors that play a pivotal role in an investor’s decision-making process:
– Yield from Rental Income: This is a cornerstone for investors. They’ll factor in the costs related to financing (such as buy-to-let mortgages) and other expenditures to determine their potential return on investment. A yield above 5% in London or over 9% elsewhere in the UK would generally be perceived as a lucrative return.
– Tenant Reliability: A seamless history of timely rent payments and minimal disturbances boosts a property’s appeal. An impeccable track record will bolster confidence among potential investor buyers.
– Property Profile: Investors might have reservations about certain types of properties, irrespective of the potential yield. For instance, certain ex-local authority properties in tall buildings might pose refinancing challenges, making them less enticing for investment purposes.
– Prospect of Capital Growth: For a segment of investors, this can be the pivotal aspect. Numerous foreign buyers flock to properties in London—even those without immediate rental income—owing to the long-term investment security they offer.
In sum, understanding these determinants can provide insights into the likelihood of your tenanted property attracting bids at auction.
Often, landlords approach us when they encounter difficulties with their tenants. They’re left with a choice: either pursue legal avenues against the tenant or auction the property with the troublesome tenant still occupying it. Common tenant-related concerns encompass unpaid rent, disruptive behavior, property damage, or unauthorized subletting.
While there are investors who specifically target properties with difficult tenants, the bids they make tend to be lower than the market rate. Auctioning a problematic tenanted property presents a swift and uncomplicated solution to shed such an issue. However, it’s always prudent to first weigh other alternatives before resorting to a discounted sale; dialogue with the tenant or contemplating/taking legal measures are valid preliminary steps.
It’s essential to underscore that auctions aren’t solely for problematic scenarios. Numerous high-quality tenanted properties also find their way to auctions for reasons outlined in the aforementioned segment.
While auctioning a tenanted property is feasible, offering a vacant property usually yields a higher selling price. This is because a vacant property draws interest from potential homeowners, who typically outbid buy-to-let investors.
The guidelines for landlords wanting to serve notice to their tenants underwent modifications during the Covid-19 pandemic. For Assured Shorthold Tenancies (ASTs), landlords are obligated to provide written notice expressing their desire for property repossession (termed as ‘notice to quit’).
Landlords are required to notify their tenants with:
2 months if the notice was given prior to [Date A].
3 months if notice was served between [Date A] and [Date B].
6 months if notice was offered between [Date B] and [Date C].
4 months if notice was presented between [Date C] and [Date D].
2 months if the notice was delivered on or post [Date D].
It’s crucial that the landlord’s notice explicitly mentions the date by which the tenant should vacate.
For the latest information on serving notice, it’s recommended to refer to the UK Government’s official website.
Understanding Capital Gains Tax:
If you’re selling a property that isn’t your primary residence, you might be subject to Capital Gains Tax, irrespective of whether the property is sold with a tenant or is vacant.
Capital Gains Tax is computed on the profit earned from the sale of your property – the difference between the purchase price and the selling price. There may be an allowance or partial exemption if the property was once your primary residence.
Capital Gains Tax on a Tenanted Property Sale:
While seeking specialized tax advice is encouraged, an online Capital Gains Tax calculator can offer a preliminary assessment of potential tax liabilities for residential property sales.
For those selling UK properties while residing overseas, there are specific guidelines for Capital Gains Tax computations.
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