The buy-to-let market has experienced a downturn over the past few years, with increasing government regulation making it harder to turn a profit on these properties. Section 24 introduced taxes on mortgage interest, treating it as income, making heavily mortgaged properties less viable, and the increasing amount of paperwork required for every tenant as well as the potential abolishment of tenant fees means further costs pushed onto the landlord.
For many landlords, the only option is to sell.
Here’s the question, though: do you sell the house with the tenants in it or do you sell it without?
Selling a house with tenants
The main benefit of selling a house with tenants in it is that it costs you less over the short term. If you have a property being rented out at £900 a month, a 20-week period without the tenant in it could cost you more than £4,000. Properties in some areas are taking months to sell, which could result in an even higher loss of income.
For properties in more desirable areas, the house could sell in as little as six weeks. However, this assumes that everyone is very highly organised and there are no major hold-ups regarding surveyors or local councils. In some areas, councils can take 4 to 6 weeks to come back with the required searches, which costs you more than £1,200 alone – and that’s before taking into account the amount of time it takes to put your property on the market and get to a stage where an offer is accepted.
While there are some complications regarding the deposit, depending on which scheme you use to secure it, having a tenant in the house already means that the new owner is guaranteed an income from the very start and doesn’t have to market the house after they’ve bought it.
In this case, you don’t have to do much other than talk to the tenants and give them the appropriate notice that you will be putting the house on the market. You will also have to ensure that they have appropriate notice for each house viewing, typically 24 to 48 hours.
Selling a house without tenants
There are, however, major advantages to selling a house without tenants.
The biggest advantage is that you open up the market to buyers who want to make it their primary residence. While they could go through the procedure of giving notice to the tenants, most buyers don’t want to go through the hassle, so they tend to ignore properties with tenants in them.
In addition, they don’t want to pay for the additional cost of living in another house while they wait for the tenants to leave, which could mean renting a house for a month or even paying two mortgages, which might not be financially feasible. Finally, there are stamp duty implications if they buy a second property. Although they can reclaim that stamp duty later, it’s still a cost that has to be borne initially – 3% on the property purchase. On a £300,000 property, that’s £9,000.
When you sell a house without tenants, you can also give yourself time to repair the property and make it look more desirable. Because tenants are not responsible for wear and tear, they have no incentive to replace items that are looking worn, such as carpets. All the little repairs needed may not add up to much in terms of cost, but a more desirable-looking house could mean you gain thousands on the sale.
You could even substantially renovate it or add an extension without the tenants in it and increase the total gain, although investment properties are subject to capital gains tax. However, you also can offset improvements (a luxury kitchen when the original was a standard kitchen or perhaps a loft extension or conservatory) and various expenses relating to the sale of the property and its purchase.
To start the process, you would issue your tenants with a notice to quit a month before you would like them to move out. The main exception to this would be if they were in an assured shorthold tenancy, which protects them for the first six months. In that case, you would have to wait and give notice in month five so they could be out in month six.
The decision regarding whether to sell a house with or without tenants depends on your financial situation and what you want to achieve. If you’re in a fast-moving area, it may be better to sell a house without the tenants in it as you may be able to achieve a higher price without them. In slow-moving areas, however, you may prefer to keep the tenants in situ so that you can keep the money trickling in while you wait for a suitable buyer.