Disposing of Your Assets - When is Selling a Property Portfolio Appropriate?

Most landlords and property investors will buy and sell properties over the course of their investment journey. They’ll sell for a variety of reasons and in a variety of circumstances.

One of the questions often faced by investors is whether to sell properties as a bundled portfolio, or individually. There are, as you would expect, pros and cons to both approaches.

Having just looked at the benefits of buying a property portfolio, we’re now going to look at the other side of the coin; selling a portfolio. When is it appropriate? What are the benefits of doing so, and whether selling individually makes more sense?

As property professionals with long experience in helping our clients to buy and sell buy-to-let investments, we’re well placed to help you work out which approach to selling property is best for you.

First things first – why are you selling?

Why you are considering selling a property portfolio is important to determining the best way to achieve your goals. You need, therefore, to be clear about what those goals are.

Some landlords only sell when they are ready to quit the sector altogether – retirement maybe, or possibly it’s no longer delivering what they want.

Others will buy and sell continually, weeding out lower-performing properties and replacing them with properties which have greater potential.

In the first example, it’s likely that your goal is to maximise your return from your investment, whereas the second example is more about ensuring the overall health and vibrancy of a portfolio.

This may well influence the approach taken to the sale of the properties involved.

Portfolio sales vs individual sales

It is axiomatic that a landlord who owns but one property which they let out will not (indeed, cannot) be interested in a portfolio sale. They’ll either sell to another investor with tenants in situ or, more likely, try to sell on the open market.

Assuming that return on their capital is the aim, selling to potential homebuyers is probably, but not always, the way to go.

Portfolio sales are therefore largely the reserve of those who have committed larger investments into the private rented sector (PRS).

Here you’re likely to see a couple of sales approaches, aligned with the reasons for selling outlined above.

An investor with a small portfolio may be looking to leave the market altogether. A larger investor is likely to be looking to streamline or improve the performance of their investment as a whole.

In both cases the approach to selling their properties may align quite closely.

We’re going to proceed with the assumption that all properties discussed are tenanted and not sitting vacant; we’ve previously covered the tenanted vs vacant sales debate here.

The smaller investor

The smaller investor’s approach will probably be influenced by their desired outcome; are they seeking a quick, complete solution so that they can move on, or are they looking to maximise their return.

Selling their entire property holding as a portfolio has several advantages.

• Rather counter-intuitively, sale prices for portfolios often exceed the price achieved for individual tenanted sales

• Rent accrues to the seller until the deal is concluded.

• Although multiple properties are involved, there is only one transaction as far as the seller is concerned – the sale of the entire portfolio.

• Consequently the process should be less time consuming and stressful. This is where experienced, specialist estate agents can be a real benefit.

It’s not all plain sailing however:

You will be selling to a niche market, one that’s much smaller than the homebuyer’s market. Consequently seek out estate agents well-versed in this field.

The alternative is a hybrid approach, where lower performing properties are bundled for a portfolio sale, and better properties are offered as a tenanted sale.

You’ll have to deal with the vagaries of that sector; homebuying chains, delays, broken chains and changes to interest rates which can see potential buyers suddenly shying away.

The upside is that hopefully you can clear a number of properties in one fell swoop without adversely affecting your erstwhile tenants, while realising a decent profit on the properties you sell on the open market.

Larger property investors

Larger investors approach selling a property portfolio differently, and are more likely to dispose of properties to streamline or improve their portfolio overall.

They are more likely therefore to identify properties which are not performing to their desired level and to sell them on as a portfolio to other investors who may be quite happy with the level of return delivered.

It is also possible that where a large property investor has some properties with the potential for excellent returns on the homebuyer’s market, they will split those properties from the portfolio and offer them for individual sale.

It’s a generalisation, but institutional property investors are less likely to be selling for any reason other than to strengthen their overall portfolio, and therefore may be less concerned about the time it takes to realise the profits from individual sales.

Selling a portfolio as a limited company

In addition to the approaches already discussed, a landlord or investor operating as a limited company has the option to sell shares in the company, up to, and including, the point where ownership of the company, and all its assets, pass to the buyer.

There are tax benefits to this as capital gains tax doesn’t apply in this example, however we would stress that it is wise to take specialist tax advice if you’re contemplating this route as things can get complicated!

Property buyers and auctions

This may be an option if you absolutely need to dispose of your portfolio as quickly as possible, but you will pay for that speed by having to accept a lower offer than other investors might offer.

Advice from the property pros

Our advice in this case is simple – come and talk to us, or in the interests of fairness, another experienced property professional.

As we’ve outlined above, what you’re hoping to achieve will have a very definite impact on the best approach for you and how you proceed.

Looking for a clean break, with minimal disruption, fewer costs and the best chance of preserving your current tenants homes? In this case, a portfolio sale is the best option.

However, you’ll be selling to other property investors and they’ll be looking to maximise their return, that includes getting the best possible price they can achieve.

Expect to face negotiations on your price, and you should clearly understand where your financial red-lines are before you start the process.

This advice applies equally to a larger investor thinking of selling a property portfolio to improve the overall quality and value of their holdings. It’s a clean sweep and when it’s done, it’s done.

If on the other hand you want, or need, to see the best return you can get, either a series of individual sales on the open market, or the kind of hybrid approach described may be your best bet.

There is no one-size-fits-all approach here.

In summary…

Like any other substantial financial transaction, you need to have done your homework and taken advice regarding the best approach and the fiscal implications of the various options.

We’re not trying to point you in any one direction here, as agents we can handle any of the directions you might choose, our aim is to ensure that you get what you want from the sale and to steer you towards the solution that will deliver just that.

So, if you’re currently mulling over the best way to dispose of your properties, or how to maximise your returns whilst exiting the buy-to-let market, please get in touch – we’ll be happy to sit down and work through all the permutations with you.

Written by Chris Wood, MD & Founder of Portolio

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