Selling to a Sitting Tenant

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    Selling to a Sitting Tenant

    We are planning our exit from the private lettings market in the next couple of years. We have already sold one of two properties (after it fell vacant), and if the remaining tenant gives notice and moves on as well, we will not relet the other, but refurbish and sell. If the tenant doesn't move on, we may have to give him a gentle push (s21?) as we will want to sell with vacant possession.

    I'll need to do rather more than the usual between-tenancy freshening up to get the best price for the property, and I'll also incur agent's fees etc. One possibility is that the existing tenant might be interested in buying it from us, and I can see that it might be attractive to have rent receivable right up to sale completion and to sell 'as is' rather than to refurbish. We would accept a slightly lower price, but not have the outlay (or the work) associated with preparing the property for sale. We could either sell at a slight discount, or at full value, but with some form of 'cashback' agreement (to help the tenant raise the necessary deposit, perhaps) that amounted to the same net value.

    Are there pitfalls to avoid or any special considerations that I haven't thought of?

    #2
    You stated the tenant is a sitting tenant so I assume you mean a regulated tenant. If that is the case and they are unwilling to buy and/or move, you will not be able to sell with vacant possession. The tenant might be willing to move if you financially compensate them.

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      #3
      No, I just meant an existing tenant (under a statutory periodic AST).

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        #4
        Its good to sell to a tenant as theres no loss of rent or agents fees. There should be tax breaks but thats another question. But is the tenant really ready?

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          #5
          If I were you I would tell the tenant that the property is going into auction at some date say February, but so long as access is provided for any would be bidder by reasonable prior appointment it is not intended to give notice to him/her; and see how that goes down. In my experience of the market at the moment, there is pretty much a scramble to get out of cash and into real assets so the price will be bid up quite satisfactorily by someone who would in any case buy for investment purposes. Get all your paperwork in order, set the reserve and see how you go. Auctioneers are negotiable on fees, especially if there is more than one lot in due course. In normal times you would get more with vacant possession but the great thing about auction is the typically compact timescale.

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            #6
            Selling by auction is the least attractive of all options, for us. It's an ideal 'first-time buyer' modern house and should sell readily in good decorative order. The only real issue is whether to offer 'first refusal' to the current tenant (and the best approach to negotiating the 'package'), or whether to get the property vacant in the usual way, and sell on the open market. There is no mortgage to service, so losing the incoming rent during the pre-sale void is of no significance, as long as the cost of refurbishment can be recovered in an open market sale.

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              #7
              If you are determined to sell to a first time buyer then look to securing possession. I shall be interested in what others have to say about seeking possession. Is there still a moratorium in getting a possession order? I am not in the habit of asking tenants who pay rent promptly to leave, which is another reason if it were me Id go down the sale of investment property route. With a sale by auction, almost certainly to an investor the legal effects of section 82 of the coronavirus act wouldnt apply. If the tenants are interested in buying, you will soon know.

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                #8
                You need to speak to your tenants about your intention for selling. It will give them time to look for a new home or try to save for a deposit.

                Selling at a discount is a good idea, may be gifting them part of the deposit (you need to check tax and legal). However, you need to do this on commercial basis. Also, I don't know if there are tax implication of doing improvements after the tenants have moved out.....

                Selling to existing tenant is the best.

                FTB can be flaky, if it is n't the right property.


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                  #9
                  Originally posted by Flashback1966 View Post
                  You need to speak to your tenants about your intention for selling. It will give them time to look for a new home or try to save for a deposit.
                  Yes, I intend to have a preliminary conversation with the tenant. Ironically, even with a 95% mortgage, the repayments would be no more than the current rent - but the deposit is likely to be the stumbling block (and hence my thought of a 'cashback' or deposit contribution arrangement). I'd rather have a clear picture of the pitfalls (or benefits) of this type of arrangement before I show my hand, so to speak.

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                    #10
                    I would check with lender and both solicitors about gifting a deposit as i found a snag with that a few years back.

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                      #11
                      I have a feeling that its no so much that prices are going to go up (even further) but the value of money in the Bank will diminish. The Chancellor created £400,000,000,000 and squished it into the economy. It wasn't money that we had, it was just created, which is pushing up prices. Knowing the British penchant for property ownership it will end up in higher real estate prices. Monetary inflation. You should be buying if you can, not selling!

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                        #12
                        Originally posted by StuartH View Post

                        but the deposit is likely to be the stumbling block (and hence my thought of a 'cashback' or deposit contribution arrangement).
                        I think if you try to 'help' your tenant with a deposit you will encounter severe problems. It would be seen as artificially inflating the price & selling for less and then the mortgage company wouldn't lend the same amount and you may even be committing some type of fraud. Best to let them try to come up with the deposit - if they even want to buy it!

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                          #13
                          Originally posted by jpucng62 View Post

                          I think if you try to 'help' your tenant with a deposit you will encounter severe problems ... and you may even be committing some type of fraud.
                          Such arrangements are common with new-build property. The usual requirement seems to be that with a high LTV mortgage (inevitable, here) the purchaser should have at least as big a stake at risk (with their own money) as any 'contribution', but the discount could easily be presented as a contribution towards legal fees (so that the purchaser has more of their own for the deposit), or even as a rent cashback in the final rent period or two (same applies). No one is planning fraud.

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                            #14
                            Originally posted by flyingfreehold View Post
                            You should be buying if you can, not selling!
                            We will reinvest the proceeds in our own retirement property but are getting out of lettings, that's all.

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                              #15
                              I'm not suggesting anyone is planning fraud - but if the house in worth £100k & the mortgage is based on 95% and you give the tenant £5k you can see that the mortgage company might think the property is only worth £95k so the mortgage is now over 95%.

                              There was a guy local to me who wanted to offload his rentals and was prepared to help his tenants in the way you are suggesting. It was suggested that he would be falling foul of many rules & regulations.

                              I think the big boy builders may have a different get out - I am just suggesting it mayn't be as simple as you think to give a tenant a helping hand.

                              Comment

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