In a highly competitive rental market, many tenants are opting to stay in their properties for longer periods, leading to a notable trend of landlords selling with tenants in situ. This trend is particularly evident among portfolio landlords, who are facing increased pressure due to soaring borrowing costs in the current climate. The outcome is a surge in landlords with substantial property holdings seeking to offload some of their assets.
Landlords Sales Agency has observed this phenomenon, reporting an average of 240 inquiries per month from landlords owning more than 20 properties who are considering selling. Impressively, about three-quarters of the buy-to-let sales finalized by the agency last year were completed with tenants in situ. This indicates a strong interest from fellow investors, showcasing a healthy appetite for purchasing rental properties.
The move to sell properties with tenants in situ not only meets the needs of the supply-demand imbalance in certain locations but also allows tenants to remain in their current homes for extended periods, contributing positively to the rental market.
David Coughlin, Managing Director at Landlord Sales Agency, underscored the challenging conditions faced by some landlords in the current market. This, in turn, raises concerns about tenants potentially losing their homes when landlords decide to sell without tenants in situ. Coughlin emphasized the critical need for rental properties in the UK and highlighted the agency’s efforts to help both landlords and tenants navigate through this challenging period, including assisting tenants with rent payments and arrears.
Amidst this dynamic landscape, it’s essential for property investors to carefully consider their exit strategies, whether for reinvestment purposes or other financial objectives. Selling with tenants in situ has become a popular option, particularly when appealing to other landlords in the market. Kirsty Burnham, Head of Property at Movewise, outlined the key advantages of this approach for both landlords and tenants:
- No loss of income: The selling landlord continues to receive rental payments until completion, and the buyer starts receiving rental income immediately.
- Guaranteed yield for the buyer: The buyer knows the rental amount from the beginning, providing clarity on yields from the property.
- Time savings: No need to issue eviction notices, leading to a smoother and faster sales process.
- Minimal disruption for tenants: Tenants experience little change apart from adjusting their rent payment recipient.
- Better price: Some property investors offer higher prices for properties with tenants in situ, especially for houses in multiple occupation (HMOs).
However, there are potential drawbacks to selling properties with tenants in situ. Buyers may perceive tenanted properties as higher-risk investments, which might result in lower sale prices. Additionally, there are administrative costs to consider, as landlords must comply with existing tenancy agreements, notify tenants in advance of the sale, and provide notice for property viewings, which can deter potential sellers.
In this challenging environment, finding a balance that benefits both landlords and tenants is crucial, ensuring the stability of the rental market and the availability of quality rental homes.