Pros and cons of selling a property with tenants insitu

Mahsroh

Hi all,

I have a rental property that i'm looking to sell in the near future (it's not immediately desperate but i'd like to get on the market within the next 12 months) in order to help fund the purchase of my own residential property. My original plan was to give the tenants notice ahead of this summer (they have 5 months left on a 12 month AST with no break clause, and I believe with COVID legislation i'm required to give 6 months anyway). I have morally been going over this in my head constantly for the last week or so, because given the current situation with COVID and a non existent rental market, I'm really reluctant to give the tenants notice. They're good tenants, in their 3rd year, treat the property well and have always paid on time. It seems morally wrong to give them notice (however long that notice is) in the current market.

Anyway, yesterday I got a valuation from a local estate agents (or best they could based on their knowledge of the area and some photos - they haven't viewed the property yet due to the sensitive nature with tenants insitu) and the valuation is pretty much bang in line with my expectations. So it's pretty much down to me if I want to get the ball rolling to have the tenants vacate in the summer.

The Estate Agent did however throw in a bit of a curve ball and suggest that I market the property to investors / landlords with the tenants insitu. Which on one hand sounds ideal. 
1. The tenants get to remain at the property removing my moral dilemma 
2. I continue to receive rent until such time that the sale is complete and don't have the financial burden of paying a mortgage (and council tax) for potentially months on end with no rental income whilst the property is on the market / under offer waiting to complete. 
On the other hand, i'm significantly limiting my market (although a property of that type / value / in that area is likely to appeal more to investors / LL's whether empty of not, though if empty would also appeal to the first time buyer market).

As i've said above i'm not in a real serious rush to sell (though wouldn't want it to drag on for too long) so there is no real risk by marketing it now even if it doesn't sell for 6months+, but the idea of selling with tenants insitu on the face of it feels like its fraught with difficulties in terms of the legalities and practicalities. The estate agents are obviously playing that down, but they want the business, so decided to come here in search of honest, independent advice. Has anyone had experience of doing this before (either buying or selling)? Interested to hear others peoples experiences or thoughts.  

[Deleted User]

Pros
You continue to earn rent.

Cons
Everything else. Mainly that you've limited your market to a very small sub set who will therefore beat you down on price by far more than you made in rent.

ElizabethRose

Have you thought about asking the tenants if they want to buy it? Obviously they may not but it's a possibility. 

Mahsroh

ElizabethRose said:

Have you thought about asking the tenants if they want to buy it? Obviously they may not but it's a possibility. 

Yes. That will 100% be the first port of call once i decide next actions. Obviously I don't want to have this discussion until I decide what to do, and i'm 90% certain from previous (general chit chat) conversations i've had with them that they're not in a position to buy. But absolutely I intend on giving them the opportunity to buy first. 

crumblylancashire

My landlord is wanting to sell soon, we've been in here 2 years - but he does want to sell it empty, which I totally understand, selling with a tenant sounds pretty tricky.  He told us this last October by email (so, not an official notice or anything).  He did offer to sell us this place at a reduced amount, but it'd still be beyond affordability - maybe speak to your tenants, see what their plans are?  We were saving to buy somewhere anyhow, so it was no biggie and I'm glad he told us in plenty of time.  He's also said he can be flexible, and maybe stay a little longer if purchasing runs over, or leave on short notice if it doesn't - which is much appreciated.  So, I'd just talk to them, but ultimately you have to do what is best for you.

theoretica

Can you try both?  Advertise with the tenants in situ for a month or two and if it doesn't sell then give them notice to leave, but still open to selling tenanted in the mean time?

FTB_Help

Comming from someone who is buying from a LL, it is a massive headache.

The place im buying is great, fantastic sought after area, all properties in the area sell quickly (within weeks of listing), been in bidding wars for other properties in the area and then noticed this one im buying, for some reason it had been on the market for 2 months they only had myself and another interested party, then i found out its because it has tennants the day we went for viewing.

We're ftb, so not in a massive rush to move in, but most people will not touch a property with tennants.

The other interested person did not bid.

The LL only gave notice when they accepted my (low) offer which meant I've been waiting around for the best part of 6 months.

Most people would not even start conveyancing or surveys until the tenants leave so you might end up having a void period of no rent anyway.

You are definitely limiting your market to either investors or ftb (most of the time may not be able to afford as much as someone who already has equity in a property).

I'd advise to not be greedy, give notice when you do want to sell and then market after they have left, you can't have your cake and eat it too.

There have been many months of stress on my part, im sure if i was not a ftb and in a chain i may have had to pull out.

eddddy

Did the EA give you an indication of what it might sell for vacant vs selling with tenants?  LLs/Investors tend to have different buying/valuation criteria from private buyers - for example, they're very interested in yield.

In theory, some LLs might like buying a tenanted property - because they have no tenant finding costs, and they earn rent from day 1. (But there's also the risk that you might be unloading difficult tenants on them.)

I guess there's the option of trying to sell it tenanted, and if you get no interest - start the eviction process.

Mahsroh

FTB_Help said:

Comming from someone who is buying from a LL, it is a massive headache.

The place im buying is great, fantastic sought after area, all properties in the area sell quickly (within weeks of listing), been in bidding wars for other properties in the area and then noticed this one im buying, for some reason it had been on the market for 2 months they only had myself and another interested party, then i found out its because it has tennants the day we went for viewing.

We're ftb, so not in a massive rush to move in, but most people will not touch a property with tennants.

The other interested person did not bid.

The LL only gave notice when they accepted my (low) offer which meant I've been waiting around for the best part of 6 months.

Most people would not even start conveyancing or surveys until the tenants leave so you might end up having a void period of no rent anyway.

You are definitely limiting your market to either investors or ftb (most of the time may not be able to afford as much as someone who already has equity in a property).

I'd advise to not be greedy, give notice when you do want to sell and then market after they have left, you can't have your cake and eat it too.

There have been many months of stress on my part, im sure if i was not a ftb and in a chain i may have had to pull out.

Thanks for this.

Your scenario is slightly different and is the "3rd option" that was put to me by the estate agent of "selling it then giving the tenants notice once it's sold" which I immediately said was a non starter, for exactly the reasons you've outlined. 

The idea of selling with the tenants insitu is that they take on the tenants too. So i'd effectively be removing residential / first time buyers from my target audience and specifically be looking at investors / landlords who are wanting to buy the property with the intention of keeping it as a rental property and not looking to move into. 

But reading your comments was useful, because it's reaffirmed my thoughts when I spoke to the estate agent yesterday that marketing with tenants in place then giving notice once an offer is received is an absolute non starter. 

Mahsroh

eddddy said:

Did the EA give you an indication of what it might sell for vacant vs selling with tenants?  LLs/Investors tend to have different buying/valuation criteria from private buyers - for example, they're very interested in yield.

In theory, some LLs might like buying a tenanted property - because they have no tenant finding costs, and they earn rent from day 1. (But there's also the risk that you might be unloading difficult tenants on them.)

I guess there's the option of trying to sell it tenanted, and if you get no interest - start the eviction process.

They seemed to suggest not much difference and that the "normal" asking price would be about right for a potential investor based on the current rental income, which to be honest did surprised me. I do intend on speaking to two more EA's for a 2nd and 3rd opinion.

But yeah, the general consensus (both on here and speaking to friends / family) is long the lines of "give it a go and if it doesn't work then give the tenants notice"  

FTB_Help

Mahsroh said:

FTB_Help said:

Comming from someone who is buying from a LL, it is a massive headache.

The place im buying is great, fantastic sought after area, all properties in the area sell quickly (within weeks of listing), been in bidding wars for other properties in the area and then noticed this one im buying, for some reason it had been on the market for 2 months they only had myself and another interested party, then i found out its because it has tennants the day we went for viewing.

We're ftb, so not in a massive rush to move in, but most people will not touch a property with tennants.

The other interested person did not bid.

The LL only gave notice when they accepted my (low) offer which meant I've been waiting around for the best part of 6 months.

Most people would not even start conveyancing or surveys until the tenants leave so you might end up having a void period of no rent anyway.

You are definitely limiting your market to either investors or ftb (most of the time may not be able to afford as much as someone who already has equity in a property).

I'd advise to not be greedy, give notice when you do want to sell and then market after they have left, you can't have your cake and eat it too.

There have been many months of stress on my part, im sure if i was not a ftb and in a chain i may have had to pull out.

Thanks for this.

Your scenario is slightly different and is the "3rd option" that was put to me by the estate agent of "selling it then giving the tenants notice once it's sold" which I immediately said was a non starter, for exactly the reasons you've outlined. 

The idea of selling with the tenants insitu is that they take on the tenants too. So i'd effectively be removing residential / first time buyers from my target audience and specifically be looking at investors / landlords who are wanting to buy the property with the intention of keeping it as a rental property and not looking to move into. 

But reading your comments was useful, because it's reaffirmed my thoughts when I spoke to the estate agent yesterday that marketing with tenants in place then giving notice once an offer is received is an absolute non starter. 

You're welcome.

Definitely do not market as residential if you've not given notice.

I don't know too much about LL/ property investment but as you're looking to sell to other investors, will the price reflect this? I.e do investors expect a discount on market value as opposed to selling to  Joe public?