Pros and cons of selling a property with tenants insitu

Mahsroh

So, I thought I should give an update on this as I was given a lot of useful advice. 

Basically followed advice on here. Firstly spoke to tenant and advised of my plans and gave them an opportunity to make an offer which unfortunately they couldn't. I then explained that I would first try and sell the property to investors with them insitu but they actually expressed a preference to be served notice (as they didn't potentially up to a year of uncertainty by the time i'd tested the waters on the investor market, then issued a S21 etc.) so I issued a S21 notice which was obviously 6 months (with 5 left on their fixed term tenancy) but told them if they'd found a new place in the meantime we could surrender our tenancy agreement early, so they duly started looking elsewhere but realised there really isn't much available at the moment so they approached me and asked that we go back to plan A of trying to find an investor first. 

So after a number of conversations with estate agents I eventually put it on the market last week with the same asking price as though we were selling in the traditional way (I was sceptical but the EA was adamant this was the right move as they said that having reasonably long term tenants insitu would be a massive positive for investors and they were certain they could get close to that asking price).

Within 5 days of it going on the market (yesterday) I received an offer of 3% below asking price (bang on my own expectations) which I have today accepted!! 

Great result all round! When the EA's I started opening dialogue with suggested marketing to investors I was completely against the idea, but now i'd recommend to anyone. Tenant is happy because they get to stay put, i'm happy because i've got a quick sale (STC!) at a fair price and don't have to worry about months of paying a mortgage / council tax/ insurances with the property empty, and the buyer starts earning income on day one. 

I know enough horror stories of mortgage valuations / Home buyer surveys / general conveyancing issues etc. to not crack open the bottle of champagne just yet, but today has been a good day! 

poolboy

Well done, I bought 2 with tenants in situ mid contract.  Good deal for me as landlord as I started earning on day 1, in fact, 1 tenant is still there after 9 years.  Just check if there's a mortgage that they don't insist on vacant possession, sometimes they do and tenant has to move out for a day, it happened to a friend, then a new ast was issued on day 2.
Also, do the certificates transfer, like eicr and epic.

summergirl40

We were in the same predicament, put my partner's house up for sale and luckily a btl buyer has bought it and taking on the tenants. We have very lucky the tenant has been very patient with all the viewings and works that we have got carried out. 

Mahsroh

poolboy said:

Well done, I bought 2 with tenants in situ mid contract.  Good deal for me as landlord as I started earning on day 1, in fact, 1 tenant is still there after 9 years.  Just check if there's a mortgage that they don't insist on vacant possession, sometimes they do and tenant has to move out for a day, it happened to a friend, then a new ast was issued on day 2.
Also, do the certificates transfer, like eicr and epic.

Thanks for the heads up on that. I'll get my solicitor to check with the buyers solicitor. That would be a pain in the back side. Seems strange as from a lenders perspective it shouldn't be much different to a remortgage with tenants insitu, but who knows how their minds work!? I'll make sure to check that one. 

EICR, gas safety cert etc. I think is for the property rather than the individual so should transfer. The EPC definitely does because up until three years ago I was still using the one produced by the previous owners just before I bought. I'll pass everything on to the new owners anyway - up to them what they choose to do with it I guess. They may want to just do their own for peace of mind anyway. 

Deposit is the one i'm not 100% sure on how the transfer would work, but i'll get advice from my estate agents on that. They should be able to help as they also have a lettings dept. 

Mahsroh

gina30 said:

We were in the same predicament, put my partner's house up for sale and luckily a btl buyer has bought it and taking on the tenants. We have very lucky the tenant has been very patient with all the viewings and works that we have got carried out. 

Same here. My tenant has been brilliant tbf. 

Once (if) the sale is completed i'll probably send a bottle of wine or something as a thank you. A lot of stress and upheaval for them that they didn't ask for. I'm very grateful. 

macman

Bear in mind that if you do want to sell with vacant possession, then it's not just 6m notice that is required. Once the notice period expires, the tenant is under no obligation to vacate, and it'll take you 9m to a year to gain a possession order, given the huge court backlogs. The earliest you would gain possession is July '22.

Mahsroh

macman said:

Bear in mind that if you do want to sell with vacant possession, then it's not just 6m notice that is required. Once the notice period expires, the tenant is under no obligation to vacate, and it'll take you 9m to a year to gain a possession order, given the huge court backlogs. The earliest you would gain possession is July '22.

Yep, hence the reason i'm happy i've had an offer from someone to buy with the tenant insitu.

Having said that my tenant was gearing up to leave by the end of the six months, albeit that would've been subject to finding somewhere else. A moot point now though. 

David2710

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.

What risk? I think any potential Btl landlord would want to see either the rent book or sellers bank statements before purchasing an ongoing SHT. If the property is well looked after and the tenant has a good payment record I don't see any risk whatsoever to the Btl landlord. What potential buyer would want to take on "difficult tenants"?     

Natbag

Speaking as a tenant, just chat to them about it, be open and honest. My landlady told me in January that she wanted to sell my flat, two months before the end of the current tenancy agreement, but said I could stay until any new owners exchanged. As it was, I was just about to start looking for my own property to buy and agreed to move out at the end of the agreement, which I did earlier this month, and in the meantime I accommodated all viewings, making sure the flat was spotlessly clean and tidy before each one and going out while they took place. Maybe I'm a rarity, but they might be totally fine with it depending on their circumstances/plans, especially if they are good tenants like you say.

ETA I've just seen your most recent update, glad you got a good outcome!

David2710

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. 

"marketing with tenants in place then giving notice once an offer is received is an absolute non starter".

As a tenant I am in exactly the same position. My LL tells me he intends to sell the property but his preferred option is to sell to a Btl landlord as an ongoing concern. The other option is to give me (the tenant) two months notice to quit and to market the property as vacant. What happens though if in the property remains unsold for months after the tenant has left and or the buyer pulls out just prior to exchanging contracts? Not only is the Landlord now liable for council tax, he/she could potentially be out of pocket with no rent and legal fees to the tune of ten G's. Either option is not risk free but if in my case there's a good relationship between tenant and landlord, it shouldn't be a problem coordinating a leaving date and exchanging contracts. That's the difficult bit.