Sitting Tenant - effect on value of house

Smi1er

I'm looking at a possible investment, a freehold house with a tenant on a protected tenancy.

I can't evict them which isn't a problem, and also restricted on rent increases, again not a problem.

However, this also effects the value of the property. I'm trying to gauge the value as a percentage of what it would be if I got vacant pocession

SmashedAvacado

Massive impact. It depends on their rights, the rent they are paying and their age.

You will need specialist advice, but basically these kinds of properties end up in auction because they are not easy to sell.

Slithery

How old is the tenant?

Do any of their relatives have a right of succession?

Are you looking to get vacant possession some day or will you be happy if there is a protected tenant for the duration of your ownership?

ThePants999

People often make the mistake of conflating a house's value and its market. They're linked, but they're not the same thing.

When you're buying a house, there is no definitive "value of the house". Nobody else can come along and tell you a number which is that house's value. There's only what it's worth to you, which is based on a thousand factors and we couldn't possibly tell you. If you were buying a house to live in, the value of a house with tenants that cannot be evicted is effectively zero. If you're buying a house as an investment, having sitting long-term tenants with predictable rent increase could conceivably ADD to the value. It's all up to you.

Buying as an investment, though, means there's one thing you do need to consider: the resale value. So imagine you bought this house, years pass and you're looking to sell. The value of the house at that point is slightly better defined, though it's still pretty woolly: it's what you can get someone to pay for it. This is a combination of:
- what each possible buyer would pay for it
- how many of them you can get to see and consider it
- negotiation (which includes competition).

This is why it's so hard to judge what changing something about a house does to its value - because it changes the value differently for each possible buyer, so the ultimate effect depends on which possible buyers view and what THEY think. If you get three people interested, and they respectively (secretly) think it's worth £370K, £390K and £400K to them, then it's probably worth £390K to you, as people don't tend to offer what they think it's worth, so you end up getting approximately what the second-most-interested person thinks it's worth. So if you do something that the people who thought it was worth £370K and £390K don't care about at all, and causes the person who thought it was worth £400K to no longer be interested at all, you just dropped the value by £20K. If instead Mr £390K and Mrs £400K don't care at all, but Miss £370K drops out, it didn't affect the sale price at all.

So, purely in terms of resale value, having these permanent tenants will cause a lot of the potential market to evaporate entirely, which could drop the value due to less competition. But some of the remaining potential buyers might like it more. But then you might fail to find the ones who would value these tenants. So, in short, there's no way to say "ah, yes, protected tenants, that's a 5% drop".

45002

Smi1er wrote:

I'm looking at a possible investment, a freehold house with a tenant on a protected tenancy.

I can't evict them which isn't a problem, and also restricted on rent increases, again not a problem.

However, this also effects the value of the property. I'm trying to gauge the value as a percentage of what it would be if I got vacant possession

I have a protected tenancy "Regulated" by 1977 Rent act and property been sold twice with me still living there


1st sale £60,000 knocked off £240.000


2nd sale £71,000 knocked off £231.000



Every sale of a property with a "protected tenant" in place will be different


As Slithery posted # 3


Its very important to find out how old tenants are, Joint or Single tenancy, is there anyone else living there "family" how old are they because of succession rights.


Just to note


Regulated tenants also have right to buy under certain circumstances.

The right of 1st refusal-part 1 of landlord and tenants act 1987 (as amended by housing act 1996)

https://assets.publishing.service.go...32/leaflet.pdf page 54






....

Smi1er

Some fab points there and very much worth consideration.

Rent is ok, and it looks like the yield against a similar house on the same estate that was sold with it being refurbed is 4.1%, quite good considering the protected tenancy.

Tenant is single and tenancy can be passed to partner.

Happy to keep tenant in place.

Looks like I have more research to do.

45002

Hello SmiLer.

Do you know how old the tenant is or approx age ?

The tenancy can passes to the spouse or partner, and there has not been a previous succession.

Tenancy remains regulated tenancy. If it passes to another member of the tenant's family, or is a second succession.

2nd succession Could be a assured tenancy under certain circumstances


Tenancy can only be passed on twice

Happy to keep tenant in place

You got No choice if you buy with regulated tenant in place...



.....

bouicca21

As a cautionary tale I offer the long ago experience of some acquaintances. They bought a house with a protected tenant at a bargain price. Tenant was a very elderly single male, they didn't expect him to last very long and when he died they'd get a bumper rise in value. They were right, he didn't live more than a year or so - but during that time he married a very much younger woman. Whoops, no bumper payoff for at least 30 years if not longer.

martindow

In France it is quite common for people to take ownership of houses and pay a monthly figure to the resident who has the right to receive this until they die.


This woman


https://en.wikipedia.org/wiki/Jeanne_Calment


did this at the age of 90 and then lived to 122. By that time the owner had paid out twice the value of the flat and in fact died before she did.

Smi1er

As a wrap up for this.

I estimated the tenant was 57 (through social media) and that she had a partner. Rent was £500pm.

I decided property was worth £85K to me, with £90K as a cut off point.

It sold for £105K