When people make a financial investment, they generally have a plan for how long they want to invest and when they’re going to want to cash in. So, most landlords buy property with the idea of renting it out for a certain number of years before either selling up or passing it on, often to their children.
But when the time comes to sell, what do you need to think about as a landlord? What’s different about selling property when it’s an investment, rather than your own home?
If you’re thinking of selling your property or portfolio now, here’s our handy round up of the key things to know and consider before moving ahead.
How much is your investment currently worth?
This may be a big factor for you. All your financial calculations, and possibly even your decision on whether now is the right time for you to sell, will be based on the current market value of your property.
So, the first step is to find out what that is. You can get a rough idea yourself by looking at recent sold house price data for similar properties in your area, which you can find on sites including Rightmove and Nethouseprices.
But to get a more precise, up-to-date figure, contact a good local estate agent that’s selling properties and dealing with buyers every day. You can call us on 020 7048 0400 or email firstname.lastname@example.org, and we’ll be very happy to arrange for one of the team to visit and appraise your property.
Who’s your target buyer?
When you’re selling a rental property, you’ve got two main markets: other landlords and people looking for a home. So what are the pros and cons of each?
Selling to a homeowner…
A property that’s been rented out is likely to sell to a ‘normal’ buyer for a bit less that what its market value might be if it had been a permanent home. That’s because the layout and look of the interior is a big factor in achieving the asking price.
Rentals tend to have hard-wearing fittings that someone wouldn’t necessarily choose for their own home, and you may have added things like partition walls, extra bathrooms and fire doors that the average buyer will want to remove. Added to that, tenants may not look after a rented property as well as they would if they owned the property themselves, and that’s likely to show in the décor.
All in all, anyone buying your investment property for their own home is going to want the purchase price to reflect the amount of work they’re going to have to do to get it looking ‘right’. Your agent might recommend that you market the property at a price that takes this into account, or they may advise you that you can advertise at a higher price, but that you should expect offers to come in lower.
On the other hand, there’s always the option of evicting your tenants and carrying out some refurbishment to secure a higher sale price, although that will obviously take time and money. But if you do have capital available to invest, it may make a significant difference to the sale price you can achieve. So if that’s an option for you, have a chat with a sales agent to help you decide whether it would be financially worthwhile.
Selling to another landlord…
If someone who’s looking for a home for themselves falls in love with your property, they may be prepared to pay a bit more than they’d hoped to make sure they get it. But if an investor can’t get you to agree a sale price that works with their figures, they’re liable to simply walk away and look for another property that does. So, selling to someone who’s making a purely financial investment can sometimes be trickier.
That said, although other landlords will be aiming to buy the ‘bricks and mortar’ at a discount, offering a property that’s ready to rent should add value. Assuming you’ve complied with all the current lettings legislation and are prepared to include all the furniture and fittings in the sale, another landlord could take over and rent out the property without having to spend anything on it. In that case, if they’re prepared to pay more than their basic budget for a rental that’s ready to go, you may be able to sell more quickly and get a higher asking price than if you sold to a homeowner.
Can I sell the property with tenants in situ?
Yes! And selling to another landlord, complete with sitting tenants, can work out very well for everyone involved:
- You don’t have to go through the process of evicting the tenants before you can sell, so the transaction can potentially take place more quickly – plus it means you’ll continue to get rental income right up until the sale completes
- Your buyer stars getting revenue from the moment they buy the property, and they won’t necessarily have to spend any money on furnishing, updating or redecorating right away (assuming you’ve kept up with your maintenance!)
- The tenants can remain in their home.
If you do choose to sell with tenants in situ, the legal sale paperwork will need to reflect that, and the tenancy deposit will also have to be transferred to your buyer, but this is a fairly simple process.
Tip: Remember that you must give your tenants at least 24 hours’ notice of any viewings of the property, and they are under no legal obligation to allow this. So we’d recommend you meet with them to discuss your plans and reassure them that they won’t need to move out when you sell.
What sales costs and taxes do you have to factor in?
The main charges involved in the selling process will be the estate agent’s fee and legal fees. And if you have a mortgage on the property that’s currently within a tie-in period, you could have redemption costs to pay.
But the big cost to consider – particularly if you’ve owned the property for more than a decade – is capital gains tax.
Capital gains tax (CGT)
CGT is the tax you pay on the increase in value since you bought the property. So, if you bought it for £200,000 and sell for £300,000, £100,000 will be subject to CGT at either 18% (basic rate) or 28% (for higher-rate tax payers). You must complete a return and pay any tax owed within 60 days of the sale completing.
The good news is that you should be able to reduce the figure you actually pay tax on, thanks to some allowable deductions:
- The personal tax-free allowance. As with income tax, you have a personal allowance, so a portion of the capital gain is tax free. Currently, that’s £12,300 – and if you own the property jointly with someone else, you can both use your personal allowance.
Tip: If you’re selling more than one property, consider splitting the sales over different tax years so you can take advantage of the GCT personal allowance on each one.
- Costs related to buying, selling and improving the property. That’s things like:
- Estate agents’ fees for selling
- Legal fees from buying and selling
- The stamp duty you paid on purchase
- Survey costs
- The cost of any improvements made to the property that increased the capital value, such as major renovations or building an extension.
- If you ever lived in the property yourself, you may additionally be entitled to ‘private residence relief’.
As you’ll know if you’ve been a landlord for a while and are used to completing annual self-assessment returns, property taxation can be a minefield! So, to make sure you take full advantage of the capital gains allowances and deductions you’re entitled to, we’d recommend you consult a property tax specialist who can help you complete your return.
If you’re planning to sell one or more investment properties and would like some specific advice – or even if you just want to chat through your options – we’re always here to help. We may know of other landlords who are currently looking to buy existing rentals and can help ensure you get the best possible sale. Just call us on 020 7048 0400 or email at email@example.com and we’ll get right back to you.