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Selling A Tenanted Property

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One of the most frequently asked questions that I’m asked is,

“Should I evict my tenants before I try and sell my property”?

Many landlords believe they should evict their tenants before putting their investment property on the market, but I believe that it really depends on three factors:

  1. What are the tenants like?
  2. Will putting up the rent increase the selling price?
  3. Will the property appeal more to homebuyers or landlords?

1. What are the tenants like?

If your gut feeling is that the tenants are likely to put off prospective purchasers from buying, then I would consider evicting the tenants prior to marketing for sale.

2. Will putting up the rent increase the selling price?

If you’re going to sell your property tenanted, then before doing so, you may want to consider increasing the rent to the current market value. Many landlord buyers are driven by yield, so, increasing the rent prior to marketing will enable you to promote a better yield to your prospective buyers. You may even be able to achieve a higher selling price by increasing the rent.

For example: 

Current Rent – £1000 pcm (per calendar month)

Current Sale Value – £200,000

Current Yield – 6%

As an example, if you increased the rent by £50 pcm and a prospective landlord buyer has a minimum yield expectation of 6%, they might be prepared to pay £10,00 more (£210,000) because the higher rent at £1050 pcm still delivers a 6% yield. This isn’t always the case because house prices are also dictated by supply and demand. If the identical property next door is for sale at £200,000, then you’re probably not going to achieve £210,000, irrespective of the increased rent that your achieving. It’s worth noting that raising the rent to increase the selling value doesn’t work so effectively with single AST sales, in comparison to commercial sales, blocks of flats, mixed-use assets and HMO’s (Homes of Multiple Occupancy).

If you do decide to increase the rent then you’ll need to serve your tenant with the appropriate notice. You’ll also need to review the terms of your AST to determine whether any conditions are attached to this process. If you’d like my opinion on your particular situation then feel free to get in touch with me. Click here to contact Gina

3. Will the property appeal more to homebuyers or landlords?

The current market conditions alone can dictate whether you’re more likely to get your best offer from a home buyer or another landlord. The various market cycles can have a bearing on this but the property type and/or it’s value is going to be the main factors. As mentioned earlier in point 2, many landlords are yield driven so larger family homes are going to be less attractive to them as an investment. Remember, a property is only worth what someone is prepared to pay, so, if your property appeals to both landlords and home buyers, you should obtain a valuation for both instances. Often these valuations will be the same, but not in all instances. For an accurate market appraisal assessment, you will need to engage with an expert in valuation methodology, which you’re unlikely to find in the average high street estate agency. If this is something that you’d like me to assess for you then please don’t hesitate to ask. Click here to contact Gina

Eviction process

Evicting a tenant successfully isn’t a straight forward process. A high percentage of landlords and letting agents fail to do this correctly, due to the numerous complexities involved. I’ve even known solicitors to get it wrong and it can be a very costly process indeed. Invalid notices can delay evictions by months at a time and paying court fees twice or more is an expensive affair. Some tenants stop paying the rent when they receive an eviction notice which can really start to rack up the costs. With all of this in mind, it’s really important to use the services on an evictions expert. You need it to work on the first attempt and the whole process to be dealt with as swiftly and as smoothly as possible. Please feel free to get in touch with me if you’d like to discuss this process further. Click here to contact Gina

Length of lease (leaseholds only)

If you’re selling a property which has fewer than 82 years remaining on the lease, then this is likely to restrict your prospective buyers. Additionally, once your lease falls below circa 75 years, the number of potential buyers will decrease further and the value will begin to fall quicker from this point compared to when the property had a new lease. The obvious answer is to extend a short lease prior to a sale, but many sellers don’t have the available funds to do this. The good news is that there’s a solution to this problem if handled correctly by the right combination of selling agent and solicitor. Although this strategy is not commonly known by estate agents, it’s possible to offer a short lease property to the whole market; at the price it would be if it already had an extended lease, without having to pay for it before the property is sold and completed. This is a lengthy topic which cannot be covered in this short article, however, please don’t hesitate to contact me for more assistance on this matter. Click here to contact Gina

Conclusion

Some landlords will only purchase investment properties with tenants in situ because they want to start receiving rent from day one. Others may insist on the property being vacant for numerous reasons. Some home buyers will be put off by tenants living at the property – often because they worry about how long it might take for the tenants to leave whilst they’re waiting to buy and move in themselves. Sometimes frustrated homebuyers will decide to buy a tenanted property with the intention of evicting them straight away so they can move in themselves soon after. What many homebuyers don’t realise is that they won’t be able to get a homebuyer’s mortgage on this basis. They would need to first get a buy-to-let mortgage and then switch it to a homebuyer’s mortgage before they can move in. The costs of setting up two mortgages and redeeming the first one early just to buy a family home is not financially advisable.

Whatever the situation, it’s very simple and can be very effective to market a property with tenants in situ “IF” you have the right estate agent handling the sale. The wrong agent can cause all sorts of problems, especially those that aren’t privy to tenancy law and the terms of your existing tenancy agreement. For example, tenants require at least 24 hours written notice before access can be granted. Additionally, depending on which stage the AST has reached, you may not be permitted to carry out viewings at all. Tenants are entitled to “peace and enjoyment of the property” as well as other benefits detailed within the clauses of your tenancy agreement. You must ensure that the selling agent you instruct is totally au fait with tenancy law, which is unlikely if they don’t do lettings and even if the firm itself has a lettings division, it doesn’t mean that the agent handling your sale won’t breach the terms of your tenancy agreement on your behalf and expose you to litigation.

I hope that you’ve found this article useful and if you do have any unanswered questions or you’re looking for a competent estate agent and property manager to assist you with anything contained within this article, then please don’t hesitate to contact me.

Gina-Jo Parry

Sales & Lettings Manager

Click here to contact Gina

 

HOW ACCURATE IS THE ZOOPLA ESTIMATE?

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ONLINE VALUATION TOOL VS ESTATE AGENT MARKET APPRAISAL

An interesting question that some people ask is…

“Can I value my property online”?

It’s not possible to accurately value your property online because there’s not enough data available and the variables are too vast. Elements such as garden size, condition, restrictive covenants and leasehold status; to name a few, make it almost impossible to arrive at an accurate and realistic selling price. The property portal “Zoopla” have an online valuation tool but it relies on recent and comparable evidence. The only way Zoopla can get anywhere close to an accurate valuation is when a very similar property has sold on the same street in the last couple of months. More often than not, Zoopla is way out on its online valuation and should not be relied upon in any circumstances.  In any case, there’s no need to find an online valuation tool when estate agents are willing to come out to your property to provide an accurate valuation, free of charge in most cases.

If you would like a FREE valuation then one of our senior team members at EMBARQ will accurately value your property, taking into account all elements and variables. You can expect sound and honest advice from an industry professional with no pushy sales techniques and without any obligation to sell your property in Bournemouth, Poole or other Dorset location.

David Giles – Partner

Click here –> Contact David

An article about SEX and PROPERTY… what’s not to like?

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Market Summary – House Prices

 
With so much movement in the UK and global markets, what’s been happening to the house prices in Bournemouth & Poole? As one would expect, my research indicates that not all towns and districts within the UK have performed the same and the results for the BH postcodes make positive reading, but only for certain property types. It’s important to understand your market to enable you to refine your buying criteria, especially when capital growth forecasting forms part of your wider goals.
 

Value Change:

Bournemouth – Last 5 years
 
All property types:    ↑17.15%
Detached:                   ↑22.14%
Semi-detached:         ↑13.68%
Terraced:                    ↑13.56%
Flats:                            ↑15.76%
 
Bournemouth – Last 12 months
 
All property types:   ↓00.58%
Detached:                  ↑03.51%
Semi-detached:        ↑00.77%
Terraced:                   ↓04.43%
Flats:                          ↓01.23%
 
Poole – Last 5 years
 
All property types:   ↑16.79%
Detached:                  ↑21.66%
Semi-detached:        ↑15.82%
Terraced:                   ↑15.42%
Flats:                           ↑13.96%
 
Poole – Last 12 months
 
All property types:   ↓01.16%
Detached:                  ↑03.79%
Semi-detached:        ↓03.71%
Terraced:                   ↓01.04%
Flats:                          ↓03.28%
 
This research shows that there’s been a healthy capital growth for all property types over the last five years. Over this period the average house price in Bournemouth has increased by circa £44,000 and by £52,000 in Poole. But during the last 12 months, the figures show that BH has experienced a marginal fall in values across most property types. Detached houses are the only property type in Bournemouth and Poole that has continued to show a positive growth over what appears to be a sluggish 12 months for property prices generally.
 

Conclusion

I put these results down to various contributing factors.
 
1) Landlords leaving the market due to Section 24.
2) Reduced demand from Buy-to-Let investors due to higher SDLT.
3) Help-to-Buy incentives enabling home buyers to purchase at higher values.
4) Uncertainty due to Brexit which has made buyers more cautious and make lower offers to buffer a potential decline in prices.
 
What is still abundantly clear is that property has always and still continues to perform well over the long term. I don’t think it makes financial sense to make a knee jerk reaction; like selling an asset, because of micro movements. If your property portfolio is unencumbered or leveraged debt from a buy-to-let mortgage is serviceable, then the odd downward movement in prices doesn’t justify a good reason to sell. Many of the landlords that have exited the market over the past 18 months have had good reason to do so, which has had nothing to do with Brexit or fears of a market crash. There are many landlords that can’t service their leveraged debt and they have begun to feel the pinch of Section 24 as we enter the third phase of these tax changes.
 
Section 24 has triggered an increase in market appraisals (aka valuations) for landlords considering a sale of their asset/s. Many still aren’t sure whether it’ll affect them or not and in most cases, landlords will see no change to their bottom line. I would urge anyone to seek the appropriate financial advice from a qualified accountant and/or property tax specialist before making any decisions. If you’d like a copy of a spreadsheet that could give you some swift answers then please don’t hesitate to ask me for a template. Here’s a link to a video I made a while ago which gives some examples of these tax changes: Watch My Video About Section 24
 

Houses

There were more detached houses purchased over the last 12 months than any other property type in the Poole Borough. Circa 1600 detached houses were purchased in Poole and Bournemouth over the past 12 months, compared to 750 semi’s and 492 terrace homes. This would indicate that there is no shortage in demand for larger family homes and where demand exceeds supply, prices will continue to rise.
 

Are we buying more detached homes because we’re having more sex?

My extended research established that people are “doing it” more in Bournemouth than ever before. The number of births has been rising since the mid 70’s when 1000 or so births per year were the average. We’re now popping out circa 2200 babies per year in Bournemouth, an increase of 220%! Perhaps people were more interested in Led Zeppelin, David Bowie and Pink Floyd back then, rather than having children? Haven’t the residents of Bournemouth been watching Game Of Thrones in the evenings? But in all seriousness, my findings indicate that it could have more to do with Tax Credits than anything else. Yes, that’s right, it appears that we started to breed significantly more when changes occurred to child tax credits in the early 2000’s. By 2003 the rate of child benefit for the first child increased by 25.3 per cent and the rate for subsequent children by 3.1 per cent in real terms. We were delivering around 1500 births per year between 1985 and 2003 on the old system, but then the average number of births saw a spike when the new child tax credits came in. The number of births in Bournemouth went up by circa 116 year on year until 2009, where we began to average out at circa 2200 births per year.
 
I’d hate to think that people are having more children because of the current tax system, but the facts would back up this theory. It’s certainly not doing any harm to the prices of detached houses, but I can’t help but think, is it for love or money?

David Giles

Is it cheaper to rent or buy a house?

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The BIG question….

is it cheaper to rent or pay a mortgage?

Obviously, one would have to compare the cost on the same property to arrive at a fair comparison.

Here’s an example based on house prices and rental property values in Poole/Bournemouth in Dorset:

Example:

Dave owns a property worth £300,000 and he has £100,000 of equity, therefore, he has a £200,000 mortgage loan.

The mortgage loan is a capital repayment mortgage with monthly payments of £800.

So, Dave owns a £300,000 house and it costs him £800 per month to live in it.

Would it cost Dave less or more if he sold it to a landlord and rented it back?

Dave sells his house to a landlord for £300,000 and pays off the £200,000 mortgage loan. The market rent is £1000 per month (£200 more than the mortgage he used to pay). The rent is £200 MORE per month BUT Dave has £100,000 in the bank. He invests his £100,000 and earns 12% pa (£1000 per month). Dave can now pay the full rent of £1000 per month with the interest he’s earning from his £100,000.

So, Dave is now effectively living in his rented home for free. He still lives in a house worth £300,000 and isn’t having to find the £800 per month mortgage payments.

Roughly, £550 of his mortgage payments were paying off his £200,000 loan, therefore, this wasn’t actually a cost as such, however, he is still £250 per month better off.

Although Dave has £250 extra in his pocket every month, he is losing out on the capital growth (how much his own property may have increased by). If his property didn’t increase by more than 1% that year, then he would be in no worse position by renting. He also has the flexibility of living in different properties in various locations; perhaps worldwide, which might be attractive if his work can be done from a phone and a laptop.

There are always going to be pro’s and con’s but I think Dave’s example demonstrates that renting doesn’t look too bad at all!

Thoughts?

David Giles – Founder of EMBARQ

#property #renting #buying #poole #bournemouth #christchurch #dorset #houseprices #rentingvsbuying #mortgages #firsttimebuyer

50% CAPITAL GAINS TAX RELIEF FOR LANDLORDS!!!

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The Chancellor will be delivering the 2018 Budget on Monday 29th October (tomorrow) and I for one eagerly await the announcements.

I’m particularly interested in the Tories consideration of introducing a 100% CGT (capital gains tax) relief for those selling rental properties to their tenants. As long as the tenant has been in the property for 3 years or longer, 50% of the saving would remain with the landlord and the other 50% would be used as part of the tenants purchasing deposit. As an advocate, promoter and facilitator of enabling home-ownership for tenants, I’m really hoping that this proposal comes to fruition.
The current rules state that landlords who sell a rental property are liable to pay capital gains tax on any profits they make. If this amount is within the basic income tax band they’ll pay 18% or 28% on any amount above the basic tax rate.

With the typical gain per property being circa £15,000, this example would gift a first-time-tenant-buyer with £7,500. This figure will range significantly case by case and it’s expected that this average figure is likely to be around three times this amount in locations like London. Some landlords won’t have seen any equity growth, therefore, won’t have any gains to contribute to this proposed scheme. Seasoned landlords on the other hand that have benefited from decades of house price growth; and/or that have made shrewd acquisitions, could be subject to hefty a relief, which could become a significant windfall for both themselves and their tenants.

As with all changes and proposals to alter tax/legislation, I’ve given this scheme some in-depth thought, in particular to those landlords with mighty gains that have already extracted their profits through remortgaging. These particular landlords could face difficulties in passing over the obligated tenant-buyers deposit contribution because if they’ve already spent or reinvested the money and don’t have the required portion to pass over to the tenant-buyer, the scheme could be flawed.

I’m not totally convinced that this proposed capital gains tax relief will incentivise enough landlords to sell their properties to their tenants. Firstly, buy-to-let is a long-term investment and those that have to sell are probably less likely to have decent gains to make this a viable scheme. Secondly, more than 50% of landlords are unencumbered (have mortgage-free assets) therefore, they are not affected by the phased section 24 changes to mortgage interest rate relief, thus, no pressure to sell-off rental stock like those that are highly geared and/or with higher interest rates to service. I think a more efficient, win-win and “catch all” strategy that would make the merits of this scheme more viable, would be to refund the stamp duty levy for additional properties and establish a tax relief on the rental income for the provision of longer tenancies. The negative of this revised proposal could perhaps incentivise too many landlords to dis-invest from the rental investment arena, thus decreasing the supply of rented homes. This could leave many people in limbo; perhaps increase homelessness, and/or prolong the burden to parents to provide somewhere to live. With the current average age of first-time buyers already at 30 years old, parents may need to consider buying a home with two annexes, one for their own parents and one for their kids!

Feel free to discuss.

____________________________________________________________________

Contact EMBARQ for any consultancy and/or real estate services.

Office HQ: 01202 930 930

Email: HQ@EMBARQ.CO.UK

DAVID GILES (The Property Guy), Founder of EMBARQ, Property Investment Consultant, Letting Agent, Public Speaker, Landlord, Proud Dad, Rubbish Golfer, Ten Pin Bowling Legend, Author of The Property Guy Blog

#Budget #Budget2018 #UK #Brexit #Economics #Deal #NoDeal