What all landlords need to know before trying to sell their rental investment property
As property prices increase, many landlords are considering selling up and cashing out their investment properties.
But, before you go gung-ho for selling up, there are a few things that you'll need to consider first.
As property prices increase, many landlords are considering selling up and cashing out their investment properties.
While property investments are lucrative, the never-ending red tape can be confusing. There seems to be new legislation cropping up every 5 minutes.
So, it's no wonder that so many landlords are giving in to the allure of the juicy extra equity that the market increase has given them.
If you're a landlord and want to know how much your rental properties are worth, click here to find out, instantly, how much cash you could be sitting on.
But, before you go gung-ho for selling up, there are a few things that you'll need to consider first.
Tenancy contract dates: If your tenants are in a fixed contract term, you can't ask them to move out just yet. The tenant also doesn't have to give permission for access to carry out viewings, valuations or surveys. This can obviously create a few problems if you try to sell the property. However, you can still sell the property if you need to. You just have a much smaller pool of potential buyers. Realistically your only option here is to a) sell to the tenant or b) sell to another landlord who would keep your tenant in situ after completion of the sale.
Early redemption penalties: Perhaps your tenancy is not restricted by contract dates, and you can market the property. Of course, your tenant will need to know that you intend to sell. You'll need to serve the section 21 notice to end the contract to make sure that you give the tenants plenty of time to find an alternative home. If you have a mortgage on the property, you must ensure that you're not still in a penalty period. When you redeem a mortgage - pay it off - there are usually early redemption penalties if you're within a certain period of the mortgage deal. Usually, this is whilst you're in the fixed term period. And this penalty will often reduce as you get closer to the end of the fixed term period. Still, every lender's criteria and mortgage product are different, so you must double-check before evicting your tenants! Otherwise, you may have a few thousand to pay out to the lender on the completion of the sale.
Everything up to date?: If selling with a tenant in situ, you need to make sure the tenancy is up to scratch. The likelihood is that a new landlord/purchaser will be using a mortgage. Their mortgage lender will scrutinise the tenancy before they can agree to offer the mortgage. Any new landlord will want to know that the tenancy is good. They won't want to take on any issues, such as missing legal paperwork or rent arrears from a problematic tenant. Prove that everything is above board and the property is a sound investment; all is up to date to transfer to a new landlord.
Communication is critical: Understandably, the tenant will be worried and confused that you've decided to sell their home. Excellent communication with them is the key here. If you serve notice and want to sell the property vacant, the tenant will not be inclined to help or allow access for viewings etc. But, if you're going to try to sell the property with the tenant in situ, you need to make sure that you make this very clear to them. As soon as viewings occur, they'll feel uneasy, so you need to reassure them that they'll stay in the property, just their landlord will be changing. The prospective new landlords will be seeing them during the viewing, so they'll only want to buy the property/tenancy if things look good. Otherwise, if no landlords want to buy, you'll have to look at serving notice and selling the property with vacant possession, meaning that they'll have to move out.
The simplest way to sell a rental property is to stop it from being a rental property, i.e., evicting the tenants. But, this will also mean that you stop receiving rent income while trying to sell the property. The tenant also has to find somewhere else to live, which in the current climate could prove quite tricky.
So, perhaps selling with the tenant in situ is a viable option. The tenant gets to stay in their home, and you continue receiving rent throughout the selling process. A new landlord will welcome the opportunity to purchase a new property for their portfolio whilst you get to liquidate your asset and recoup the equity funds.
If you have any questions about selling your rental property or your whole portfolio, give our team of experts a call. They will be happy to help and guide you through the process to ensure that both you and your tenants are handled correctly.