Considering Selling Your Buy-to-Let Property?
With future rental reforms, changes to EPC rules and a turbulent few years for landlords with stamp duty and tax changes, it is no surprise that many are looking to cash in on their buy-to-lets. Whilst there are still benefits and long term investment success to be had from buy-to-let, for some, it's time to sell. What should you consider?
If you've decided it's time to reduce your buy-to-let portfolio, sell an existing investment property and and purchase a new one, or leave the property investment sector entirely, here are some of the key considerations that you need to look at before putting your rental property on the market.
Tenanted or Vacant?
The first thing to consider when you have made the decision to sell is to market the property with a tenant in situ, or, as a vacant property. There is also a possibility that the existing tenant maybe in a position to buy the property themselves. There are advantages and disadvantages to both options:
Tenanted
If you sell your property with an existing tenant, your target market will obviously be limited to other landlords, who may be attracted by the prospect of having rental income coming in from day one. The downside to doing this is that there maybe administrative issues that need to be dealt with. There could be complications with one landlord inheriting another landlords tenancy - has it been executed in a legal and proper manner? Has all the correct documentation been issued to the tenant prior to the tenancy commencing? Has the tenancy deposit been registered properly? These potential issues can be minimised if the letting agent is the same for both parties.
If you want a quicker sale, then selling to an existing landlord can certainly speed up the transaction as buy-to-let properties are often bought by more experienced purchasers. In most instances, there will not be a chain and decisions are often financially based rather than emotionally orientated when buying someone's home.
On the administration side, you'll need to provide the relevant documents to the new landlord; the tenancy agreement, Right to Rent records, gas safety and electrical certificates, the energy performance certificate as well as the property inventory that was prepared at the start of the tenancy. You will also have to have the registered tenancy deposits transferred into the new landlord's name and chosen government scheme.
If the new landlord so wishes, the existing tenant may be required to have new referencing checks and sign new contracts with the new landlord once the sale has completed.
Vacant
If you sell a vacant property without tenants, you will be advertising it on the 'open' market, which has two immediate advantages. Firstly, it could potentially achieve a higher selling price as it will appeal to both owner occupiers and investors and secondly, it will give you an opportunity to refurbish or improve the property to potentially increase its value even more.
Of course, you will need to follow the correct procedures to gain possession of the property from the existing tenant so you need to ensure that all the correct procedures have been followed when granting the tenancy in the first place.
If the tenancy is still within the original fixed term and you wish to sell the property with vacant possession within this period, you will need to have a mutual agreement with the tenant to end the tenancy early.
If the tenancy has become periodic, then you can serve a Section 21 notice which will give two months notice to vacate the property.
If you are intending to undertake a schedule of refurbishments or decorating works then it's advisable to keep things neutral to appeal to a wider audience - whether this be another investor or a homebuyer. Individual properties in varying locations require different 'upgrades' in order to increase the potential sale price. It is always advisable to get advice from your local letting agent who can advise on what to spend your renovation budget on to have the best impact.
Mortgages
If you have a mortgage on the property that you are considering selling, then you will need to look at the details of the mortgage when planning your exit strategy.
If you have a fixed-rate mortgage where mortgage repayments are fixed for a specific period of time, these are often subject to large early redemption penalties if the mortgage is repaid early. However, not all fixed-rate mortgages are subject to these costs so be sure to read the small print carefully!
Capital Gains Tax
Unfortunately, all buy-to-let properties are subject to Capital Gains Tax (CGT) when they are sold.
This is charged at a rate of 28% for higher-rate taxpayers or 18% for basic-rate taxpayers and is payable on any increase in value that the property has benefited from between purchase and sale. If you are a basic rate taxpayer, any gain will be added to your income, potentially pushing you into to higher-rate band.
Every individual has a tax-free capital gains allowance of £12,300 per year in 2022-23, so you will only be liable for CGT on profits above this threshold.
It's also possible to offset some costs, such as stamp duty, solicitors costs when you bought the property and any charges associated with selling it such as estate agent fees. You can also offset any capital improvements you've made to the property against your Capital Gains liability. However, you cannot deduct any general outgoings on the upkeep of the property or any mortgage interest incurred.
You must report and pay any Capital Gains Tax due on UK residential property within 60 days of selling the property.
Should I sell my Buy-to-Let?
As with most things to do with property, there is not a definitive cut and dried answer and definitely not a straight ‘Yes’ or ‘No’. Your own individual circumstances and objectives will play a huge part in your decision.
Since 2016, the life of a landlord has changed massively. Stamp duty, Brexit, mortgage interest relief and countless changes to lettings legislation have all contributed to, according to the media, a mass exodus of landlords from the buy-to-let market.
However, many investors will be rubbing their hands with glee and seeing this as a great opportunity. As increasing numbers of landlords leave the market, there will inevitably be a raft of properties coming onto the market This could offer up some bargains.
Renters still need to rent, and with fewer landlords on hand to supply that demand, rental prices have increased by unprecedented levels over the past year. Not good news for tenants, but great news for those landlords willing to stay in on a long term basis.
Many mortgage brokers believe that the private rental sector is currently undergoing a periodic 'shake up' as landlords re-evaluate their own position following the aforementioned tax changes some five years ago.
Looking at our own figures over the past 12 months, Professional Properties have added 43% more managed properties to its portfolio than properties that landlords have decided to sell.
The last word is this. Every individual has different circumstances, different objectives and a different outlook. It's important to look at all of these before you make a decision to sell your buy-to-let investment.
Selling by Auction
There are many advantages of selling your property by auction, it’s flexible, quick and secure. You can choose the type of auction that best suits your circumstances, set your own timescale and with the purchaser either exchanging contracts or paying a reservation fee to secure the property, you know they are committed to their purchase.
We work with SDL Property Auctions, one of the UK’s largest and most successful property auctioneers, so you can trust us to offer the best advice and look after your needs every step of the way. We offer a complete range of auction services, so whatever your situation, we have a solution and timescale to suit you.
What’s more you can even sell your property for FREE, yes that’s right, we really mean you can sell with NO FEES! We offer 0% commission and there are no upfront costs to list your property. The benefits of selling by auction include:
Security of sale - With the buyer paying a reservation fee to secure the property, you know they are committed to their purchase.
Fixed timescales - You can start and end the online auction at any time to suit you with fixed exchange and complete dates, giving you total control.
Minimum reserve price - With the reserve price agreed in advance, your property will never sell for less than you’re prepared to accept.
Our specialist INVESTMENT SALES TEAM are always available for a chat, a face to face meeting or a video call. Please get in touch. Call today on 01332 300150.
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