Tenanted vs Vacant: Which is The Best Way to Sell Your Property?

There has been so much talk of landlords selling up over the past few years. Falling property prices, the rising cost of living and borrowing and new regulations have changed the private rented sector (PRS) dramatically.

Assuming that you have reached the decision to sell some or all of your properties, what is the best way to approach the sale? Do you sell as a tenanted property or give notice and sell your property as a vacant possession?

Spoiler alert! There is no simple answer to this question, it depends very much on your aims and circumstances.

As buy-to-let specialists with decades of experience, we’re going to guide you through the ups and downs, whys and wherefores of selling your current property to ensure that you get the best result for you.

So let’s get into it!

First things first – why are you looking to sell?

Landlords have many reasons to sell property and not all of them are connected to the current economic and legislative environment. It may be time to realise equity, or a desire to move their investment to a different area.

However it is fair to say that recent regulatory changes have pushed many landlords to consider their investment. Since this article isn’t specifically about regulation, we’ll keep this as brief as possible and suggest this comprehensive overview.

In Scotland, the passing of the Coronavirus (Recovery and reform) Act has meant that since October 2022, evicting tenants, even to sell your property, has become harder.

There is no longer certainty that the First Tier Tribunal will sanction an eviction as their discretionary powers are now permanent. You’ll find more information in our blog, Selling Your Tenanted Property in 2022 – What You Need to Know.

In addition, the Renters (Reform) Bill, which will change the PRS in England, is still making its way through Parliament and is causing some real consternation amongst landlords for similar reasons.

Options for selling

Whether you sell your property as a tenanted vs vacant possession will likely depend on your circumstances. If a tenancy is due to end, say by the tenant giving you their notiec, you have the choice to re-let or offer to market.

Currently in England, if you have sitting tenants, you may choose to go down the Section 21 no-fault eviction process to end the tenancy, although this isn’t without risks.

North of the border, your choices may be more limited. Remember also that in Scotland, landlords are obliged to give 3 months notice, except in very specific instances.

Vacant possession

If you have vacant possession, you can simply offer the property via the open market. No specialist estate agents are necessary and you should realise the best possible price for the property.

You will also benefit from a much broader potential market interested in your property as you’re able to accept offers from both home buyers and property investors. Selling tenanted property is a specialised market, and the pool of buyers is smaller.

It is quite possible that you’ll have to spend some money on the property before offering it on the open market in order to maximise your return.

So it’s worth factoring in the possible cost of redecorating, cleaning or replacing flooring, utility costs during the void period, property staging and removing any property left by tenants when calculating the pros and cons of selling in this way.

Selling with tenants

Depending on the circumstances, this may be your best, or only, option. We always preach the importance of maintaining frank and open communication with your tenants, and it can pay dividends here.

You can read about our top tips for achieving this in our blog ‘7 Things Your Tenants Need to Know When Selling Your Tenanted Property’.

Let them know that you are looking to sell – they may express interest in buying the property from you, and this could be a fruitful discussion for both parties, the closest result to a win-win you can hope for!

Generally the owner would expect to sell the property as-is, without the necessity to spend any further money on it, and you can expect to receive rental income until the sale concludes.

Alternatively, they may be willing to vacate the property, but even if they’re not, keeping them in the loop and reassuring them will just make everything easier for everyone.

Your tenanted property can be offered on the open market, it happens regularly as a quick look at estate agents websites will confirm. You will also notice that asking prices for tenanted properties tend to be lower than for vacant possessions.

The reason is obvious – anyone looking for a home to live in isn’t going to buy a property with tenants in place.

Enter the specialists

As Scotland’s premier landlord estate agency, we have offered many insights into the still-misunderstood process of selling with tenants in situ. In particular we’d suggest our blog, ‘What are the Alternative Routes to Selling Your Tenanted Property’.

This article covers all the fundamental information that you, as a landlord, need to know, including some information regarding capital gain tax (CGT).

TIP: In all matters regarding finances and the potential implications of your choices, please seek the advice of your accountant. We’re very good at what we do – but we are not finance professionals!

Selling through specialists, such as ourselves, means that you are dealing with a smaller potential pool of buyers. On the other hand, those buyers are all looking for potential investment opportunities, so you’re already ahead of the game!

Additionally, years of experience mean that specialists understand the market and can advise you on all the pros and cons and will be able to give you an honest appraisal of the likely value you’ll realise.

Off-market sales

The term ‘off-market’ essentially refers to a sale where the property (or properties) are not offered to the open market.

As an example, you instruct specialist estate agents to sell your property portfolio, but rather than advertising, they contact a number of investors with whom they do business to find a buyer for you.

By doing this, you avoid the sometimes substantial costs of advertising and marketing, you don’t generally have to provide Home Reports and you’ll usually remove the necessity for property viewings.

Instead, your agents will prepare a ‘desktop appraisal’ for interested parties. The asking price would be determined by looking at recent, comparable sales in the same, or similar, area.

TIP: Off-market sales can work for single properties as well as portfolios. We recommend getting a Home Report as it provides the buyer with more confidence and makes negotiation on price less likely.

This all sounds great, however there is a but… Since your market is other property investors, they will be actively seeking the most competitive price so expect them to be seeking a discount.

The expected discount can vary depending upon whether you’re selling one property or a whole portfolio, but like nearly everything in life, there will be room for negotiation.

Portfolio sales

Compared to selling a single property, portfolio sales are more complex, but not impossibly so when handled by professionals.

One of the benefits of portfolio sales actually favours the buyer, and that is avoiding Additional Dwelling Supplement in Scotland (currently 6% of purchase price) and the prospect of tax relief on LBTT or SDLT.

Given that Land and Buildings Transaction Tax (Stamp Duty Land Tax in England) can add up to a substantial sum of money, this is a genuine incentive for buyers and may make purchasing a number of your properties at once more attractive.

For the seller, there is the prospect of a sizable lump sum in return, however always speak to your accountant about the possible CGT (Capital Gains Tax) implications.

Advice from the property pros

Selling your property at present is one of those ‘if I was going there, I wouldn’t start from here’ affairs, thanks to the current economic climate. However, it’s always been thus and there are some things we cannot control.

So, how do you make the best of what you have? If you can sell with vacant possession, you will benefit from maximum market reach, and despite everything we hear on the news, demand still outstrips supply.

There is no guarantee that you’ll achieve the price you want, as rising mortgage rates and the continuing cost-of-living crisis squeezes the finances of buyers, but all being equal you should have the best chance of doing so.

Selling with your tenants in situ is not as difficult as is often assumed, and for both landlord and tenant, this can be the best option. Tenants get to stay where they are and you realise the value in the property.

What we can say with some certainty is that there are still plenty of potential investors looking for the right opportunities; granted it’s a subset of the whole property market, but they are much more focused.

Consequently, you may find that they are keen to strike a deal, resulting in a quicker, off-market sale, which may suit your situation better.

In summary…

You’ll have realised that there is no right or wrong answer to the tenanted or vacant conundrum. Rather, the ‘right’ answer is the solution which serves you best.

Now, we are experienced enough to understand that sometimes even the better option may not always deliver exactly what you want, and it’s really important that you know what you want and what you need before starting the process.

If there is a price below which you cannot, or will not go, for whatever reason, then perhaps a different solution is right for you, even if in the short-term it involves a certain amount of financial pain.

No matter how well you get on with your tenants, and how much their welfare matters, your decisions should be based on hard business factors first. Once you’ve done that, you can then take wider considerations into account.

At every step we’ll be there to help you. We can make sure you have considered the pros and cons of different choices and may be able to suggest courses of action you haven’t yet considered.

So, if you’ve decided that selling some or all of your properties, tenanted or vacant, may be right for you, get in touch to find out how we can help, and how we can make your decision proceed as smoothly as possible.

Until the next time – thanks for reading, we hope you found it interesting!

Written by Chris Wood, MD & Founder of Portolio

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