After the challenges of purchasing and managing a buy-to-let property, another challenge may come when landlords decide to sell a property. This may be because you decide to no longer be part of the lettings industry, you wish to downsize your property portfolio, or because they feel a certain property is no longer a beneficial part of their portfolio.
Selling a rental property can be tricky as, naturally, you want to get the best deal possible, but at the same time you may need to consider your tenants and various other factors. In this guide we look at some of the things you need to do or keep in mind when selling a buy-to-let property.
Get a property valuation
When it comes to selling your property, it is important that you understand its value. If you put it on the market for too high a price, you may struggle to attract interest and end up wasting money on listings. If you undervalue it, then you could be losing out on the amount that the property is truly worth.
You can use online tools to either get a free valuation or one that you pay a small fee for, although these are usually estimates and may not be accurate. For a more accurate valuation, you can enlist an estate agent to visit in person for a thorough assessment instead.
You might also find it useful to check how much the property has sold for in the past, as well as how much other properties on the same street have sold for. Portals such as Rightmove and Zoopla can be worth checking for such information.
Check your tenancy agreement
If tenants are still living in your property, then it is important to consider them and their rights during the selling process. You may need to check your tenancy agreement to understand when the current term ends and, therefore, how much time the tenant can legally remain in the property.
It can be a good idea to be upfront with your tenants by letting them know as soon as possible that you are planning on selling the property. You may want to give them first refusal to buy the property. While it may be unlikely that they are in a position to buy, this would save you a lot of time and fees if they are interested.
If your tenant’s term is still ongoing and you wish to start listing your property already, take into consideration that when people come to visit the property, you are relying on your tenant to keep it neat and tidy. You will still need to ask your tenant’s permission to arrange viewings and give them at least 24 hours’ notice. To reduce the disruption caused by viewings, you might choose to arrange group viewings instead of individual ones.
If the tenancy will end before you plan to list the house and you want to make some extra income before the sale, you could offer them reduced rent to stay in the property until it is sold.
Alternatively, if your tenants wish to remain in the property, you might consider attempting to sell it with sitting tenants. Of course, this would mean selling to another landlord rather than to a prospective homeowner. One benefit of this is that you will continue to earn rental income right up until the finalisation of the sale. It can also appeal to prospective buy-to-let buyers because they will have rental income coming in as soon as they own the property.
What does the eviction process involve when selling a rental property?
If you don’t plan to sell your property with sitting tenants, or if a homeowner wants to buy your property, then you will need to ensure that the eviction of tenants is done legally.
If you are evicting your tenants, you will need to give them at least two months’ notice that once their fixed-term tenancy is complete you will require them to leave the property. To ensure that this is done legally, you need to have previously placed their deposit in a registered deposit protection scheme and ensure that the date you are asking your tenant to leave is more than six months after they moved in.
The Government’s website provides further information on the eviction process. However, if you have a solicitor, you can also request their help.
What are the legal requirements when selling a rental property?
Before selling a house, you need to make sure that you have all the relevant paperwork in order. You need to have an Energy Performance Certificate to sell your house. This must be shown to potential buyers so that they can see the energy usage rating of the property. This certificate highlights a rating from A (most efficient) to G (least efficient).
This is especially important information for landlords since, as of 1st April 2020, new leases can only be granted for properties that meet a minimum standard of E. This applies to all tenancies.
Other paperwork such as the property title deeds may also be required. If your property is a leasehold, then you will also need to supply a Leasehold Information Pack, including information about the management of the property. This can be obtained from the freeholder or managing agent of the leasehold.
Selling through an estate agent vs private selling
When it comes to advertising your rental property for sale, most landlords choose to go through an estate agent. This way, you can rely on their expertise and resources throughout the process. An agency can arrange for professional photographs to be taken of the rooms in your property, as well as ones from the outside. They will also write up an attractive description to go along with the photos in order to highlight the key selling points of the property.
Bear in mind there will be various fees associated with using an estate agent for selling your rental property. The fee that most estate agents charge tends to be a percentage of the sale price.
Alternatively, you have the option to avoid any extra expenditure by privately selling your house. This can work well in a situation where you already know someone who is interested in making an offer. If you choose to list your own property to sell it privately, here are some quick tips to consider when writing a description of the property:
- State the good characteristics of the area such as if it is quiet or has a great community spirit
- List nearby services such as good schools, hospitals, or transport links
- If you have quiet or friendly neighbours that you or your tenants get along well with, you may want to mention it
- List the key selling points of the property itself, such as a spacious garden, a brand-new kitchen, or a versatile spare room
- Be honest when writing the listing. Lies or exaggerations may attract interest, but people will soon see through the lies when they view your property
Another option to consider is selling it at auction. You can put a reserve price on the lot to avoid it going for less than you would be happy with. The winning bidder is legally obliged to complete the sale transaction and will lose their deposit if they pull out of the sale.
Could home staging help you sell your rental property?
Put some thought into how you present each room, both for photographs and for viewings. First impressions can mean a lot. Some home hunters will make an instant decision based on what they see in the photos. You may want to consider home staging, or interior styling, which is designed to show off your property in the best light.
Before professional photographers come in to take marketing photos of the property, you can hire a team of interior stylists to optimise the appearance of the home through furniture, mirrors, artwork, and soft furnishings.
These stylists ensure that the property looks impersonal yet stylish, so that it appeals to the maximum number of potential buyers. In recent years, homeowners are also more concerned with buying into a lifestyle, so it may be important that they can envisage themselves living in the property.
Home staging not only helps to secure more viewings and offers, but it can also allow you to command a higher asking price. Staged homes could sell for around 10% more than non-staged properties and sell three times faster.
If you decide to stage the home yourself, remember to keep all pieces neutral and ensure that the property is furnished with clean, modern items. Bare properties often struggle to sell quickly, so it is advised that you stage each room and make the home look ready to move into.
Paying taxes when selling a buy-to-let property
Buying a property and then selling it on for a profit can be a lucrative business. However, it is important that when selling your property, you understand you need to pay a certain amount in Capital Gains Tax (CGT).
As of 5th April 2023, the tax-free allowance for the amount of profit a person can make per year by selling buy-to-let properties is £6,000. That’s down from £12,300 prior to this. Anything over this will be charged at either 18% or 28%, depending on the amount of income you have made over the year. From April 2024, this allowance will drop further from £6,000 to £3,000. You must report and pay any Capital Gains Tax on most sales of UK property within 60 days.
However, there are some expenses that can be deducted from this, such as estate agent fees, Stamp Duty and solicitors’ fees, and if you make a loss or a profit under £6,000 you will not have to pay any tax.
Find suitable protection for your property
There are various risks associated with letting a residential home. Keep your investment safe, whether it’s a single property or a portfolio. Our comprehensive Landlord Insurance can help protect you from financial risks, including accidental and malicious damage by tenants and loss of rent if the property becomes uninhabitable due to an insured event.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Just Landlords accepts no liability for any inaccuracy, omission, or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.