What Should You Know When Deciding to Exit the Property Market

At present, you’d be forgiven for thinking that landlords are quitting the market en masse. 

Certainly that’s the impression that the media including outlets like Property Industry Eye is giving.

It’s worth remembering that the private rental sector is not some monolithic, unchanging whole, rather it is in large part composed of many small landlords. These individuals come and go, depending on their personal circumstances.

Since this is exactly our area of business and expertise, I thought an article about how and why landlords exit the property market would be timely – if only to offset a certain level of media hysteria!

So, landlords aren’t quitting the market then?

Yes they are, but the point is, they always are. Our business is based upon the fact that landlords will want to buy, and sell, rental properties. So this isn’t anything unusual.

Landlord numbers fluctuate all the time, because people’s reasons for being  landlords change depending on their circumstances and goals.

External factors also exert pressure on landlords, for instance the rent freeze imposed by the Scottish Government in September 2022 may have given some landlords pause for thought.

The Scottish Government has just published the statistics behind their recent decision; ‘Cost of Living Bill – Key Statistics’.

This report makes interesting reading although a detailed analysis of its contents is a bit beyond the scope of this article. I may return to it in future to see what information and conclusions can be drawn from it.

The more relevant question is are landlords choosing to exit the property market in unusually large numbers? This, it turns out, is harder to judge. According to Sky News, things are not going at all well in the rental market.

However, the figures below were provided by the Scottish Association of Landlords, and appear to tell a less apocalyptic tale.

The drop between 2017 and 2020 is significant and may be explained by the COVID pandemic. The change between 2020 and 2021, while still significant, is far lower, with 4,992 fewer landlord registrations, but 406 more properties registered.

So, yes, there were fewer landlords in 2021 compared to 2020, but that reduction represents only 2.04% of landlord registrations in 2020. Not really an exodus is it? And moreover, it hasn’t reduced the number of properties available for rent.

However, part of the problem is that data is not always readily available or there could be a lag in landlord numbers if their registration isn’t immediately cancelled and runs the remainder of the 3 year licence. There are some who have been foretelling the demise of the Private Rental Sector (PRS) for decades, and who should, frankly, find another hobby.

What’s your strategy?

Back in October 2021, I wrote this blog about leaving the buy to rent market: ‘Landlord Advice: What’s the Best Landlord Exit Strategy?‘, and that advice still holds.

However, the world is ever changing and it may be that you are looking at the market, considering the rises in interest rates, the current rent freeze in Scotland and thinking to yourself, ‘enough, it’s time to get out’.

Even if you had a strategy in place, circumstances have a terrible habit of stomping all over them with their uncaring size 11s. That’s life, and there is no reason to panic if your original idea no longer looks optimal.

The UK housing market continues to suffer from a shortage of properties of all kinds, therefore if you’re looking to exit the property market, you should be able to realise a good price on your property.

So your first big question is do you sell the property with or without a tenant?

Selling tenanted property vs vacant possession

Your key consideration, assuming that you want to maximise your return is the local market – put simply, will you achieve a greater return selling a property as a vacant possession, or as an investment opportunity?

Selling your property with a sitting tenant isn’t as daunting as you might think. Rightmove has an interesting article on the subject here, and you’ll not be surprised that we have also written extensively on the subject!

You may find yourself constrained by your current tenancy agreement. When will the tenants decide to vacate? Should you give notice to the tenants? Remember that currently in Scotland, many evictions aren’t enforceable until after 31st March 2023.

If you’re determined to act quickly, selling as an ongoing investment, with the tenant in situ may be the better option for you depending on the price you can get. This way you’ll get rental income up to the date of completion and a (hopefully) quick sale.

In some areas of the country, there is little difference between tenanted and vacant property, in others the market is crying out for retail properties. This pushes up prices, although you may have to invest to bring the property up to market standard.

If there is a significant difference in the vacant vs tenanted price, the cost of refurbishment may be well worth that final investment, but make sure you do your calculations carefully.

Advice from the property pros

Regardless of your reasons for seeking to exit the property market, it’s not a step that should, or often can, be taken in a hurry. Depending on the market, you may be able to sell your property with a tenant in situ reasonably quickly.

Otherwise the process could take some considerable time, and you should be prepared for that. Dealing with tenants, refurbishing your property and finally getting it sold all take time.

You should also have a chat with your accountant so that you are clear about the tax implications of your decisions.

All of this, along with the inevitable frustration that accompanies it, is a bit easier if you have a clear understanding of what your end-goal is. That way, if things drag on you know that it’s just an unfortunate delay to where you know you’re going.

In summary…

Exiting the property market, despite the media excitement, is rarely something that is contemplated or achieved with undue haste. It is also something that is going on constantly, along with new investors entering the market.

If you have decided to leave and you’d like some help with your options and their implications, we are always happy to put our many years of experience in the market at your disposal.

We can assist you practically, but we’re also happy to have a chat and help you sort the wheat from the chaff so that you have a clear view of your goals and how you’re going to achieve them.

It’s all part of the property investment journey so enjoy the trip!

Written by Chris Wood, MD & Founder of Portolio

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