We have written extensively about the many benefits of selling tenanted vs vacant property, but to the best of our recollection we have never broken it down financially. It is, therefore, high time that we did so.

There is a common belief that selling a vacant property on the open market to potential homeowners will deliver the greatest return, but do the numbers actually support that assertion?

As property professionals with long experience of sourcing and selling tenanted properties for landlords and property investors, we’re going to examine the advantages and costs of both options.

Comparing the process

As a first step, let’s look at what is involved in both options. We’ll assume that you have a property with current tenants who show no signs of leaving. You’ve decided to quit the buy-to-let market and head to the beach!

As a landlord the grounds (reasons) for ending a tenancy are restricted, although selling the property is one of those. We’ll concentrate on the process in Scotland as other parts of the UK may vary somewhat.

It is an accepted ground to terminate a tenancy in order to sell the property. You need to be quite clear what kind of tenancy you are dealing with as different regulations may apply.

Most tenancies in Scotland are Private Residential Tenancies (PRT), but there are others. In the case of a PRT landlords have to give a minimum of three months notice and have to intend to put the vacated property on the market within three months.

Once the landlord has possession of a vacant property, they’ll need to decide whether or not work is required before placing it on the market.

That done (or not, depending), they’ll need to engage an estate agent to market the property and a solicitor to handle the legal side of the sale. How long it will take to actually conclude a sale is a classic ‘how long is a piece of string’ question.

Finally, the landlord will bank the proceeds of the sale and head for the beach – at this point no doubt much in need of a break!

Cost of each option

It’s axiomatic that the actual cost of each transaction will vary depending on a variety of factors. Therefore we’ll try to illustrate the differences by examining average costs.

Selling as a tenanted property

When selling a tenanted property, you’ll find that professional fees; solicitors, estate agents etc. are similar to those encountered on the open, domestic property market.

What will be missing however are all of the costs required to renovate a property to make it more attractive to prospective house buyers. In addition, you won’t have to factor in the costs of utilities or local taxes during the void period while the house is prepped for sale.

• Estate agency fees can vary from agent to agent. Regular estate agents are not best placed to sell a tenanted property but a regular high street agent will commonly charge around 1.2% inc. VAT.
• In addition they will charge a marketing fee which can vary but you should expect something around £600 plus VAT. 
• Home report costs are the same, e.g. £500 for a property worth £150,000, for either a home sale or a tenanted sale. 
• Solicitor costs/fees should be the same for either type of transaction at around £1,300, for a sale.

Selling on the open market

Selling on the home-buyer market requires first and foremost terminating any tenancy. That will take time and may incur costs if the process doesn’t go smoothly. Those costs will depend on the precise circumstances of each case.

Once the property is vacated, you will have to decide how much work is required to bring it up to a standard that will attract the interest of potential buyers.

There is simply no way to put an accurate price on this however we can make an educated guess based on available information. 

So, based on a two-bedroomed flat, you might expect to pay around £2,000 to get it completely redecorated. Obviously, if you have the time and inclination, you may choose to repaint the property yourself.

Remember that time is money for pretty much all of us and factor the cost of your time and necessary materials into your calculations.

If the property requires more extensive renovation, add that to your calculations. A well-managed rental property shouldn’t require extensive work, but you may have held off some work waiting for the end of the current tenancy.

What is both legal and acceptable to long-term tenants may not appeal to prospective homebuyers.

Also realise that during this period you are no longer receiving rental income so you’ll have to meet any mortgage, utility and tax costs out of your own pocket.

As outlined above, legal and professional costs will be similar for both tenanted and vacant sales.

Likely time to sell

According to the ESPC, the median time to offer in Scotland is around 23 days, however they immediately point out that the time from offering the property to completion can be 3 to 6 months.

If you have decided to sell as a vacant property, that is the period you will not be collecting income while having to cover all the other costs of property ownership.

Average time to sale is similar for properties with tenants in situ, but in this case, the landlord continues to enjoy rental income right up ‘til completion.

Advice from the property pros

When considering selling tenanted vs vacant property there are many contingent factors. The importance and likely impact of those factors is something only you can decide.

It is true that in an active home buying market, you may achieve a better return on your property than you would when selling with a tenant in situ. However you need to ensure that any calculations you do include all the costs associated with the sale.

It is also true that selling with a tenant is likely to appeal to a smaller, more niche market, although it is possible that you’re also offering to a market which knows what it wants and has far less emotional investment in the transaction.

It may also be sitting with cash in hand, ready to conclude a quick deal.

It would be nice, when writing these articles, to point at a particular option and be able to say clearly and unequivocally, “this is the best option”, but life just isn’t like that.

What is right for you may well be wrong for someone else and when deciding whether to sell as tenanted or vacant, it is crucial that you do your sums carefully, factoring in as many eventualities as you can.

One of those considerations has to be, ‘can you afford the property if there is no rent being received?’ Some buy-to-let landlords are dependent upon rent to cover the cost of investment.

If this is the situation you find yourself in, then selling with your tenant in situ is almost certainly the right approach.

In summary…

Thank you for reading this far! Like so much in this world, selling tenanted vs vacant is a decision to be made taking into account your circumstances and needs.

Getting your property to a state to sell on the open market may take considerable time and effort, however if the property is located in a desirable location, it could be well worth your effort in the long run.

If the situation is otherwise and your property is in an area where renting predominates – near a university for instance – it may well be more attractive to a buyer as an on-going concern.

With many years of experience in this precise area, we’re ideally placed to help you cut through the surrounding jungle to reach the solution which is best for you.

We offer a no-obligation desktop appraisal of your property’s likely value and sale price to help you decide which route is better for you.

So if you’re thinking of selling a property with a current tenant, get in touch and we’ll sit down to discuss all the pros and cons of the options available to you.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]