Pros and cons of selling a property with tenants insitu

pinkshoes

I think I'd speak to the tenants, let them know that you're wanting to sell the property at some point soon, and ask them firstly if they have any interest in buying it (reduced rate due to no EA fees??), or secondly if they are wanting to stay on as tenants. If they're good tenants it is perhaps worth saying to them that you are happy to try and sell the property to another landlord so that they won't have to move out, but if this wasn't possible you would need a plan B.

It's always worth being nice to your tenants in situations like this.

ps - be wary of estate agents and the word discrete. They are often anything but discrete if it means ££££. I lived in a rented house and came home from work to discover a for sale sign outside. Turns out the EA had ignored the whole discretion bit requested by my LL (although my LL was planning on advertising without telling us, just without the For Sale board!) and stuck the board up anyway!

Mahsroh

pinkshoes said:

I think I'd speak to the tenants, let them know that you're wanting to sell the property at some point soon, and ask them firstly if they have any interest in buying it (reduced rate due to no EA fees??), or secondly if they are wanting to stay on as tenants. If they're good tenants it is perhaps worth saying to them that you are happy to try and sell the property to another landlord so that they won't have to move out, but if this wasn't possible you would need a plan B.

It's always worth being nice to your tenants in situations like this.

ps - be wary of estate agents and the word discrete. They are often anything but discrete if it means ££££. I lived in a rented house and came home from work to discover a for sale sign outside. Turns out the EA had ignored the whole discretion bit requested by my LL (although my LL was planning on advertising without telling us, just without the For Sale board!) and stuck the board up anyway!

Thanks for this and the heads up on the discretion thing. I won't be instructing the EA to do ANYTHING until i've spoken the tenants - but good to have your experience in the back of the my mind when talking to them. 

Mahsroh

FTB_Help said:

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?

According the EA the valuation they gave me should reflect to the investor market too as the asking price is in the right ballpark relative to the current rental income - if that makes sense? But I will be getting a 2nd opinion on that before making any final decisions. 

greenery

We purchased our rental property with a tenant in-situ. It was ideal for us, we didn't have to find a tenant. The tenant was at home when we viewed and we could see the that he looked after it. I believe we paid market value but the fact that there was a tenant in-situ was a positive. I would think this would be the case for prospective buyers looking for a rental property.

greatcrested

1) speak to tenants.Offer to sell to them

2) if tenants can't/don't want to buy, discuss your selling plans (below) so they are not taken by surprise

3) serve S21 Notice. It takes 6 months (and fixed term ends in 5 months) so get the process started

4) market clearly to 'investors only' for a month or two, and see if you can sell for an acceptable price with tenants in situ

5) if 4) fails, then follow through on the S21 Notice in due course. It will take time

6) once property is vacant, clean, re-paint, and market it in normal way

Mahsroh

greatcrested said:

1) speak to tenants.Offer to sell to them

2) if tenants can't/don't want to buy, discuss your selling plans (below) so they are not taken by surprise

3) serve S21 Notice. It takes 6 months (and fixed term ends in 5 months) so get the process started

4) market clearly to 'investors only' for a month or two, and see if you can sell for an acceptable price with tenants in situ

5) if 4) fails, then follow through on the S21 Notice in due course. It will take time

6) once property is vacant, clean, re-paint, and market it in normal way

Thanks for this.
The more i've researched it and spoken to others, this is pretty much the exact timeline i've come to conclude is the way forward, albeit I might wait that extra month or two before serving the notice.

PRAISETHESUN

As a tenant who is living in a house currently for sale and has been through 2 sales in the past, here's my perspective on things:

It's in everyone's interest to keep the tenant onside as they can make things very difficult for everyone if they are not - I'm suprised how often the LL/EA forget that tenants have the right to "quiet enjoyment" of the property. For most tenancies I've had, I would have been 100% within my rights to say no to every request for a viewing or anything else related to the sale until I was evicted or moved out - some ASTs have clauses to allow viewings during the notice period, but not all. This is particularly salient in today's climate, where it would be very easy for a tenant to stall things for 6+ months (or even longer if they decided to wait for a forced eviction). Be upfront with your plans and don't try to do anything sneaky or else they might decide to take you for a ride instead.

Also, decide if you're planning to sell to investors or the general public at the start. There's nothing wrong with the approach listed above, but if you're trying to have your cake and eat it too it isn't going to end well. If you want to sell to investors you'll probably want to keep tenants in situ, but otherwise you'll want to serve notice. Tenants don't really care about your void period, or the timeline for your sale, so if you intend to sell to the general public it's probably best overall to serve notice at the start and then move on with the sale once they are out - if not, you'll probably end up having to give them a generous incentive to get them to move on your schedule, eliminating any money saved from the extra rent. 

The timeline listed above is pretty much what my current and previous LLs have done, although in my experience it usually goes like this: try marketing to investors, realise that’s not going to work, serve notice, wait for the tenant to voluntarily move out or be evicted, reclaim possession, then sell as usual.

Kakiste

To add, if you decide to sell with tenants in situ, make sure the estate agents is fully aware and on board with this. A few years ago I rented a beautiful house with my family of 3. After being there for just over 14 months we got a 3 month notice from the estate agent and we found another property and moved on. However due to a massive miscommunication the seller and purchaser had agreed the sale with a view to our tenancy continuing and had no idea that we had been told to move out. The first the seller knew about it was the day of completion when he turned up to introduce himself and found a completely empty house then rang us to ask what had happened and discovered we'd moved out a week earlier as instructed!

Mahsroh

PRAISETHESUN said:

As a tenant who is living in a house currently for sale and has been through 2 sales in the past, here's my perspective on things:

It's in everyone's interest to keep the tenant onside as they can make things very difficult for everyone if they are not - I'm suprised how often the LL/EA forget that tenants have the right to "quiet enjoyment" of the property. For most tenancies I've had, I would have been 100% within my rights to say no to every request for a viewing or anything else related to the sale until I was evicted or moved out - some ASTs have clauses to allow viewings during the notice period, but not all. This is particularly salient in today's climate, where it would be very easy for a tenant to stall things for 6+ months (or even longer if they decided to wait for a forced eviction). Be upfront with your plans and don't try to do anything sneaky or else they might decide to take you for a ride instead.

Also, decide if you're planning to sell to investors or the general public at the start. There's nothing wrong with the approach listed above, but if you're trying to have your cake and eat it too it isn't going to end well. If you want to sell to investors you'll probably want to keep tenants in situ, but otherwise you'll want to serve notice. Tenants don't really care about your void period, or the timeline for your sale, so if you intend to sell to the general public it's probably best overall to serve notice at the start and then move on with the sale once they are out - if not, you'll probably end up having to give them a generous incentive to get them to move on your schedule, eliminating any money saved from the extra rent. 

The timeline listed above is pretty much what my current and previous LLs have done, although in my experience it usually goes like this: try marketing to investors, realise that’s not going to work, serve notice, wait for the tenant to voluntarily move out or be evicted, reclaim possession, then sell as usual.

Thanks for this. Very useful to get a tenants perspective. I'm currently a tenant myself too (albeit i've never had the situation of a LL marketing a property whilst i've been living in it) so as both a tenant and a landlord i'm very sympathetic to their situation and 100% intend on being honest with them from the outset (once i've made my mind up what I want to do). 

I've spoken to 3 Estate Agents now and all of them believe that the current market in the area where my property is more or less means that investors are ready and waiting to snap them up, and as somebody else had alluded to earlier in the thread - there is benefits of having tenants in place if your a LL as you start earning income on day one with no marketing costs. So that option looks more and more positive.

100% rest assured though, it's one or the other. If I stick it on the market for 3 months with tenants insitu and it hasn't been sold, then it goes off the market, notice served, and back on the market to the general public once vacant. As you've said, tenants have a right to quiet enjoyment of the property and they'd be well within their rights to be difficult about viewings, and frankly as a tenant myself I probably would be difficult about it - so I shouldn't expect anything else from my tenants. The option of marketing it to the general public with tenants living there is quite simply not an option for me.

Mahsroh

Kakiste said:

To add, if you decide to sell with tenants in situ, make sure the estate agents is fully aware and on board with this. A few years ago I rented a beautiful house with my family of 3. After being there for just over 14 months we got a 3 month notice from the estate agent and we found another property and moved on. However due to a massive miscommunication the seller and purchaser had agreed the sale with a view to our tenancy continuing and had no idea that we had been told to move out. The first the seller knew about it was the day of completion when he turned up to introduce himself and found a completely empty house then rang us to ask what had happened and discovered we'd moved out a week earlier as instructed!

Thank you! Very useful to know!