You may be a landlord stuck in a hole, in despair, and don’t know what to do or who to go to for advice.
You may have had some bad experiences with problem tenants or could be coming to the end of your mortgage term.
Some other problems may be bad tenants that have left a property in a mess, and now the property needs more money from you to refurbish ready for the next tenant….just for the same thing to happen again.
This guide should help, it has been written by experts (over 35 years) who will give you an insight into what options are available to you.
How to Sell My Buy-To-Let Property
There are many options available to landlords like you if they want to sell your property.
Many of these options are not common knowledge, so landlords are left in the dark as to what to do.
It is not always the case that selling is the best option. It is best to consider your options, see what you can do and what you can’t.
It is in your best interest to take specialist advice.
You may also face a dilemma when you want to sell your rental property with tenants. You may feel you have no choice as you may be under pressure from your lender to sell.
You may not be able to afford to evict your tenant and sell the property vacant. You need the monthly rental income to cover your mortgage costs.
These are all problems to consider.
Selling to another landlord might seem easy, but you need to be aware that these buyers will be looking for the property to have stable tenants.
They will also want a good rental yield. In other words, the ROI (Return on Investment), which will consider the rental income.
Plus, there needs to be demand in the area.
You need to be aware of the changes in tax levels for landlords.
Landlord buyers hoping to buy with conventional buy to let mortgages may be hampered in their efforts to grow their property portfolios.
On the other hand, there are still a lot of cash property buyers looking to buy quickly.
Selling My Buy to Let Property with Tenants
Achieving a sale while your property is let will depend on the quality of your tenant.
Do you sell the property with vacant possession, or do you sell it with your tenant in situ?
Bear in mind; if you legally repossess your property from your tenant and then try to sell, you’ll no longer benefit from rental income, which means you’ll have to dig deep into your own pocket to pay the mortgage.
That can become expensive if the property remains unsold for several months.
The challenge of selling a house with tenants will depend on your tenancy agreement – this is the contract you have with your tenants.
If your tenancy agreement is an assured shorthold tenancy (AST), then you are entitled to serve notice to your tenants at any time.
However, you must give them a 60 day ‘Section 21‘ notice.
Once this notice has been given, you can market your residential rental property for sale and state to buyers that the house will be empty when sold.
Consider Some of Your Options for Selling Your Property Portfolio
The auction route can introduce some certainty – which for many is key.
Other advantages of selling in this way are speed, a fixed purchase price (once the winning bid has been accepted) and the relationship the auction houses will have with investors and landlords.
The auction house aims to introduce you to a single buyer who is willing and able to complete the sale quickly at a price you find acceptable.
Most auctions stipulate a 28-day completion with legal packs being made available on the day.
On the fall of the hammer, the buyer will usually have to pay a 10% deposit and sign the contract making the property sale legally binding.
There is also a negative factor to consider – auction house fees; sometimes, these can be quite substantial.
A lot of auction houses charge the buyer, and, in some cases, this can be as high as 5% with a minimum charge of £5,000 + VAT!
You may think the buyer is paying this, so it is okay?
But it does put a lot of buyers off as they are not always prepared to pay these fees.
Also, if there is a £6,000 buyer’s premium to be paid, then you can be sure that the price of the property will reflect this!
A traditional estate agent can usually give you a higher valuation if and I say if your property is sold “With Vacant Possession”.
Selling a vacant property will appeal to the residential market – people who are buying to live in the property themselves rather than renting it.
The speed of sale and price you will expect to achieve depends on the demand in that area… if there is little or no residential demand, then it is unlikely it will sell quickly.
Be aware many agents can lead you up the garden path with false promises that your property is worth a more than you think.
This is usually a ploy to get the property on their books.
You may have the property on for months with little or no viewings and then it likely the agent will come back to asking to drop the price as the demand has not been as strong.
Estate agents usually have a small bank of investors who are looking for new opportunities, but these are likely to be very selective.
SPECIALIST PROPERTY AGENTS
The traditional estate agent just sell properties full stop.
They won’t be able to offer any alternatives.
You could consider working with specialists who have the experience, who know the market and deliver on their promises. They deal with investors and landlords daily and will have a large bank of names which they can contact once a property becomes available.
Despite all the recent changes around investment property, landlords are looking to expand their portfolios.
Selling to another landlord can make the process easier than selling to residential home buyers.
They may not be as particular when it comes to the condition of the property, and they will often take on the property with tenants in place.
Specialist agents will look at your circumstances and advise the best course of action.
How to Value Your Rental Property
Valuing a rental property that is tenanted is different from one that has vacant possession.
Calculating the value is a fine art. It takes some research.
Put your postcode in Rightmove and see what properties are currently selling for in that street.
If there are none expand your search to ¼ of a mile and look for similar properties.
That should give you an idea on price. Always compare the condition of the property.
One in top quality condition is going to sell for more than one that needs some work. You need to adjust for these.
Take note of when they were listed.
If they say reduced, then you can assume that they are either overpriced, or there is little demand in that area.
Please note that a price advertised with an estate agent does not always reflect the true value of your property.
Estate agents have a habit of pricing properties in the top range or even outside, hoping that someone will come along and offer near the asking price.
A more accurate way of valuing your property is by searching Rightmove sold prices in the last two years.
Comparable sold prices are homes sold in the last 12 – 24 months in the same area and are comparable in size, style, age and condition.
You should now have an idea on price, but an extra selling tool can be the rental yield.
The higher the yield, the more attractive it will be to an investment buyer.
This is the amount of rent you receive per month multiplied by twelve.
This will give your annual rental amount.
For example, a £50,000 property that brings in rental income of £5,000 per year = a 10% yield.
Yield alone should not be used to value a property.
Many landlords make this mistake in thinking because it has a high yield it will bring a high price.
This is wrong, it is merely used by landlords to consider the return on investment (ROI).
After doing all your research, you should now have an idea on an accurate price.
You now need to consider some other facts.
A property selling with vacant possession is going to appeal to a bigger market as it could be attractive to residential buyers who would buy the property to live in.
But a vacant property could be as attractive to an investment buyer as one that has tenants in.
Depending on the area, tenants can usually be found quickly.
Your property will have to be very competitively priced to attract a property investor.
You must price your property at a realistic level. If you overprice, then you won’t sell full stop.
How to Sell My Rental Property with Tenants
When selling a tenanted property, the odds are you’re going to attract ‘experienced landlords’, who will ask numerous questions about the tenant before making any serious offers.
A good tenant will make your proposition a lot more desirable.
Any serious buyer will care about the condition of the property and quality of your tenant.
Selling with a rogue tenant will usually do more harm than good.
Managing Your Tenants the Right Way
You need to manage your tenants.
Arrange a meeting and explain your decision and what it means.
You’re not kicking them out, because you don’t want them to lose their home as they’ve been good tenants.
Explain that another landlord will most likely buy the property, so their occupancy is most likely safe.
Managing your tenants is a fine art and sometimes best left to professionals.
Taking viewings with tenants in situ can be difficult at the best of times.
Regardless of who is responsible for the viewings, a few statutory rights are protecting the tenant that should be respected.
The tenant should be given 48 hours written notice before viewing, and they must give consent to each viewing at a convenient time for them.
Constant disruptions might upset them.
Viewings can be stressful and disruptive in this situation, which a good landlord/agent will appreciate and fully understand.
To minimise the pain, I would recommend organising block-viewings as opposed to scattering the viewings throughout the week.
It may also be wise to ask the tenant which days are most convenient for them and stick to those days.
Agreeing to Sell Your Investment Property
Once you have agreed on a sale, we recommend using a solicitor/conveyancer that has experience in selling tenanted properties as they will understand the process.
This will save you time and money.
After contracts have exchanged and the property is officially sold, the new owner will automatically become the landlord of the tenants.
The tenancy agreement contract will remain valid even though the landlord’s name is out of date.
If the tenant has paid a deposit, then you should have complied with the tenancy deposit legislation by placing the deposit in a tenancy deposit scheme.
You will have to arrange for this to be transferred to the new landlord. Your conveyance solicitor should help with this.
You may also want to contact the deposit scheme directly and discuss the transfer of ownership, as they may have their own guidance and suggestions.
Either way, it should be relatively easy.
To make the transfer of the tenancy, easier completion should be arranged to take place on a rent payment date, so there’s no need for the rental income to be apportioned between the buyer and seller.
If that’s not the case, arrangements should be made between the buyer and seller, so the appropriate amount of rent is credited to the buyer.
What Expenses Can I Deduct When I Sell My Buy-To-Let Property?
You can deduct the costs of buying, selling or improving your property, including:
- Estate agents’ and solicitors’ fees
- Costs of improvement work, for example for an extension (normal maintenance costs, such as decorating, don’t count)
You need to collect records to work out your gains and fill in your tax return. You must keep them for at least a year after the Self-Assessment deadline.
Keep receipts, bills and invoices that show the date and the amount:
- You paid for an asset
- Any additional costs like fees for professional advice, Stamp Duty, improvement costs, or to establish the market value
- You received for the asset – including things like payments you get later in instalments, or compensation if the asset was damaged
- Also, keep any contracts for buying and selling the asset (for example from solicitors) and copies of any valuations
Please note that the above is only an example. You may be entitled to more reliefs, and there are notes available on the HMRC website.
What Happens When You Sell at a Loss?
You can report losses on a chargeable asset to HM Revenue and Customs (HMRC) to reduce your total taxable gains.
Using Losses to Reduce Your Gain
When you report a loss, the amount is deducted from the gains you made in the same tax year.
If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years.
If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.
Claim for your loss by including it on your tax return. If you’ve never made a gain and aren’t registered for Self-Assessment, you can write to HMRC instead.
You don’t have to report losses straight away – you can claim up to 4 years after the end of the tax year that you disposed of the asset.
Example of carrying a £5,000 loss forward.
Your total gain – Value when you sold the property– £75,000
Minus the value of the property when you acquired it £50,000
Minus all costs, including improvements, £6,000
Total gain: £19,000
Your deductions. Capital Gains Tax Annual Exempt Amount used £11,300
Loss used from previous tax years £5,000
Total deductions: £16,300
Your taxable gain – Total gain £19,000
Minus deductions – £16,300
Taxable gain: £2,700
Your tax rate
These rates are based on your Income Tax bands: £2,700 taxable gain multiplied by 18% tax rate £486
Capital Gains Tax to pay
The above is an example only and is based on an annual income of £40,000.
See further details here.
How Much Tax Do I Have to Pay When Selling My Rental?
If you decide to sell and you are in the fortunate position of your property being worth more than you pad for it, then you need to consider the tax implications.
The main tax is Capital Gains Tax, which is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.
It’s the gain you make that’s taxed, not the amount of money you receive.
Example of Capital Gains Tax Due
You bought a property for £50,000 and sold it later for £75,000. This means you made a gain of £25,000 (£75,000 minus £50,000).
You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).
The tax-free allowance is: £11,300
Work out your total taxable gains – Take the above example. You have made a gain of £25,000.
You are allowed to deduct the costs of estate agents and solicitors. Let’s say the costs were £3,000. £25,000 less £3.000 = £22,000
Deduct your tax-free allowance of £11,300 = £10,700. This is your gain.
Say your income is £40,000 p/a
Your tax rate
These rates are based on your Income Tax bands:
- £5,000 taxable gain multiplied by 18% tax rate £900
- £5,700 taxable gain multiplied by 28% tax rate £1,596
Tax to pay £2,496
See further details here: https://www.gov.uk/capital-gains-tax
How to Sell an Entire Buy-To-Let Property Portfolio
Considering the historical popularity of buy to let investment in the UK, and the Section 24 tax changes, it’s surprising to find a lack of clear information about how to sell an established buy to let portfolio.
If you’ve already decided to sell your portfolio of investment or rental properties, you will be thinking about the best way to do that.
On the one hand, you may be looking for ease of disposal and speed, but on the other, your investment property portfolio has taken time and money to build up, and you want the best price.
It’s a question of balance and priorities.
Should you sell everything to a single portfolio buyer at a knock-down price, or would you be better off selling at a slower pace in parcels to multiple buyers?
What if you could find a single investment portfolio buyer and a good price?
Portfolios don’t appeal to everyone.
They are more attractive to investors if they are in one area as opposed to being scattered around the country.
A block of flats can be more attractive than houses that are on different streets.
Portfolio buyers usually have deep pockets and can usually pay cash. Many pension funds and corporate buyers will consider these types of investments if the return on investment (ROI) is good.
They will need to be in good condition.
If they require work, they will be down valued.
You must be realistic on price. When you sell in bulk, the buyer will expect to pay a reduced price.
In some cases, they will bid well below the market value.
It is unlikely that you will sell your portfolio through an estate agent unless you discount the price dramatically.
Again, specialist agents could be your best bet. Many of these agents have solid contacts in the corporate world and will have portfolio buyers on their books looking for the right opportunity.
These agents will give you impartial advice on what options are available to you.
Selling a Property Investment in Negative Equity
If you are in negative equity and looking to sell your property, then you know you have a problem.
Many landlords sit and wait and wait until at last, they decide to act then it’s too late.
If your mortgage is near redemption (I would consider near being within five years), then you need to act. The longer it goes on, the fewer options available to you.
An example of negative equity
- you owe the mortgage company £50,000
- you are selling for £40,000
- That is a £10,000 shortfall that you must find to pay the mortgage company
What Are Your OPTIONS When Selling Your Portfolio With Negative Equity?
First, speak to your lender. Some lenders are now more accommodating.
We have come across some landlords who are near the end of the mortgage term and unable to pay the shortfall due to the lower value.
They have allowed the landlords to keep paying their monthly payments, taking the view that to repossess and sell at a loss is of no benefit to them as they will be incurring the losses.
Lenders will not allow you to sell for less than you owe.
We have a lot of these types of situations in the North East, and we have come across instances where the mortgage company has allowed the owner to pay off the debt monthly and allowing the sale to go through.
They will probably want some additional security to do this.
You can also take out a loan, but you will then have repayments and no income from the tenant!
Borrow from friends or family. That is the easiest solution, but not everybody will have friends or family with funds.
Another option is to Speak to a specialist company who may be able to arrange a solution with your lender. These companies have a good track record, but they can be expensive.
Case Studies on Selling Your Rental Property
We had a landlord who had bought a property in County Durham.
It was bought in 2007 for £70,000.
It had been tenanted, but the landlord had not done any repairs or maintenance the property had deteriorated, and he was unable to let it.
He had had enough and did not want to spend any more money on the property.
We advised him of a sale price of £20,000. He then agreed with his lender to a payment plan for the balance.
After three months, we sold the property to another investor for £22,000. This left the landlord with a shortfall to make up, but he was happy as he could move on.
We had a very tired southern-based landlord who had bought five properties in the North East.
He had bought them after the financial crash, and while the prices were high, so he still had some negative equity.
Unable to sell outright and not wanting to spend money on repairs and maintenance, he contacted us for advice.
As there was still over twelve years remaining on the mortgages, we advised that he agreed on a deal on a Lease Option sale.
We agreed on a ten-year option with another landlord and priced the option to buy prices slightly over the prices he had paid. Given the long option date, there is a very good chance that the option will be exercised, and the new landlord will buy the properties.
Landlord Moving Abroad
This was sold in days.
We had a landlord who was moving to the USA and wanted a quick sale.
The property was in Sunderland and was tenanted at a rental of £425 per month.
The property was worth about £63,000 retail on the open market, but research showed it could take several months to sell for that price.
The landlord just wanted to move abroad as soon as possible and was prepared to sell at a slight discount for a quick sale.
The condition was that the sale had to complete in seven days from when his solicitor sent out the contracts.
Within three days, we agreed on a sale with an investor. We took a deposit and the sale completed within the seven-day period.
If you’re considering selling your rental property, there is much to consider. This guide provides you with all the answers to your questions so you can make sure you are well equipped when it comes time to sell.
Selling Rental Property FAQ
Still have questions concerning the sale of rental property in the UK? Take a look at answers to some of the more commonly asked questions for further explanation.
What type of gain is the sale of rental property?
In the UK, You will pay higher rates of CGT on property than you do on other assets. The basic rate that many taxpayers pay is 18% on gains made when selling a property. With other assets, the basic rate of CGT is 10 per cent with the higher rate being 20 per cent.
Can you avoid capital gains on the sale of rental property?
Letting relief allowed buy to let owners reduce the amount of CGT owed following the sale of their rental property by up to £40,000. This was if the property had been their primary residence at some point of ownership.
However, these rules actually changed recently in April of 2020, and this kind of relief was removed for buy to let landlords. Before, the longer you lived at the property, the better chance you had at claiming relief.
Is there depreciation recapture on the sale of rental property?
If you end up selling a property for a gain, the amount up to the depreciation is taxed at the maximum recapture rate of 25 per cent.
How much cash flow is good for a rental property?
You always want to make sure your investment property is making money as it should, so you need to familiarise yourself with cash flow. The cash flow is simply how much money is left from your income after you have paid all the bills.
If you find that you are overspending, then you want to try to reduce some of the outgoing funds or find ways to increase your total income.
So, in terms of cash flow, you are in the positive if you have money left over. However, if you are overdrawn after paying everything, you have a negative cash flow.
How do you calculate the profit on a rental property?
When calculating the profit on a rental property, you need to determine your cash flow. To do this, take your rental income minus all buy-to-let expenses, and this equals your current cash flow. When doing this, you need to make sure you figured in everything that you have to pay.
Do you have to pay taxes when selling a rental property?
In the UK, you may have to pay a capital gains tax if you make a profit on the sale of a rental property. The amount of tax you pay will depend on your rate of gain (profit) and your taxpayer rate.
Do you have to own a house for five years to avoid capital gains?
To avoid capital gains, you want to make the property your residence for at least a year. The longer you live in the property, the better.
To reduce your capital gains tax bill, you can offset any losses against the gains. This could reduce the amount of losses that exceeded your gains.
It can be carried over to offset future gains as long as the losses are registered with HMRC.