Selling Your Rental Home: Plan the Perfect Exit Without Losing Your Tenant or Income

Although rents are going through the roof, yields are getting higher, and there’s massive demand from tenants, many landlords are selling their rental homes. For some, it’s part of their long-term plan, but for others, it’s a reaction against changing rules and taxes.

Even so, not every landlord who’s selling up is getting out. Some are using the climate of stalling house prices, rocketing rents and levelling-up proposals to reset their buy-to-let business for the future. 

But what about you?

Are you hanging up your landlord hat for good? Swapping an older home for an energy-efficient modern one? Or converting to a company for tax advantages and easier inheritance planning?

Whatever your reasons, there’s plenty to think about before taking the plunge:

• Is selling the best move for you?
• How much is your property worth? 
• What are the costs and tax implications of selling? 
• When should you tell your tenant? 
• Should you sell to another landlord, or will a homeowner pay more?

That’s a lot to unpack, and our handy guide is full of answers. So let’s explore whether selling your rental home would be a costly mistake, or the best thing you can do.

SHOULD YOU ACTUALLY SELL YOUR RENTAL HOME?

Unless you’re selling your rental property as part of a long-term plan (perhaps you’re retiring and want to release funds), it’s worth a quick game of devil’s advocate. If you’re selling up because of changes in lettings law, interest rates or tax policy, consider the following factors first:

• The landlord exodus has exacerbated the shortage of rental homes and caused rents to rise, increasing the yields for landlords who stay.

• House prices have stalled, and now may not be the most profitable time to sell. In fact, many landlords are taking the opportunity to nab themselves a buy-to-let bargain.

• If you’re planning to reinvest elsewhere, bear in mind that pensions have struggled to perform as well as property, while shares, crypto and foreign exchange are more volatile.

• As part of Government proposals for a minimum EPC rating of C for every rental home, landlords may be offered financial incentives to lower the cost of upgrades.

So while your heart might tell you to sell, it makes sound financial sense to decide with your head. By digging a little deeper, you’ll reach the right decision for your business and future.

WHAT ARE THE COSTS AND TAX BREAKS FOR SELLING UP?

As well as estate agents and legal fees, you’ll need to pay Capital Gains Tax (CGT) on the profit when you sell your rental property (unless you own it as a company and leave the funds in the business). So before you jump in, work out how much selling up will cost you.

• Some landlords have decided to swallow the Capital Gains Tax bill, but if you’re planning to reinvest, think about whether you’ll recoup the amount you pay.

• When working out your CGT, you can take off all the costs of selling AND buying the property, like stamp duty, surveyors, conveyancing and estate agency commission.

• You can also claim back the cost of any improvements that didn’t qualify as allowable expenses in your regular tax return.

• You get a personal tax-free CGT allowance of £12,300 per year, and for jointly-owned properties, every owner can use their allowance on the same sale.
  
• If you’re selling more than one rental property, you could be better off spreading the sales over different tax years to use your annual CGT allowance each time.

Given that selling up can run into tens of thousands of pounds, it’s essential to have a crystal clear picture of all the costs involved to avoid nasty surprises and later regrets.

WHEN SHOULD YOU TELL YOUR TENANT?

Legally speaking, you can sell your rental property to another investor without saying anything to your tenant at all. The tenancy simply continues, and it’s up to the new landlord to serve notice about the change of ownership.

However, the reality is that most home buyers and investors want to view before making an offer, which means you’ll need to arrange access with your tenant. So here are some things you need to know:

• The tenancy agreement should have a provision for allowing viewings during a notice period, so if your tenant is already leaving, all you have to do is agree on when viewings can happen. 

• Otherwise, given that tenants don’t have to allow viewings before giving or receiving notice, it pays to keep them in the loop out of courtesy for easier access and marketing.
  
• Tell your tenant that you’re open to selling to another landlord, so they won’t necessarily have to move out.

• You can also settle your tenant’s nerves by reminding them that sales usually take a good few months to go through, and that you won’t serve notice until you’ve exchanged contracts.

Get this right, and you should be able to avoid holding an empty property without a buyer, while keeping your rental income flowing until you complete the sale.

WHAT’S THE SALES VALUE OF YOUR RENTAL PROPERTY?

A major factor in deciding whether or not to sell your rental home will be how much it’s worth. Fortunately, you don’t necessarily need to disturb your tenant just yet, as there’s more than one way to get an idea of the current value before asking estate agents to visit.

• First, check online sites like Rightmove and Zoopla for recent nearby sales of similar homes to get a general idea of what buyers are paying.

• Next, speak to local agents for a more informed estimate and their thoughts on the current market for a property like yours - they may even have an investor waiting in the wings!

• Finally, if the figures are promising, arrange a suitable time with your tenant for estate agents to visit for a precise valuation and asking price.

If you do get estate agents to visit, ask them to let you know if you can do anything to improve the value or saleability of your property. There may be some things you can do that increase your chances of selling and how much you achieve without inconveniencing your tenants.

WILL A LANDLORD OR A HOMEBUYER PAY MORE?

If you sell your rental property to a homebuyer, you’ll need to line up the notice period with exchanging contracts, the completion date and the concerns of the buyer’s solicitor. That’s ok, but we’d suggest exploring other options first.

• Start by seeing if your tenants would like to buy your property - it’s potentially the smoothest possible outcome and a great way of making them feel valued, whether or not they go ahead.

• If your tenants say no, ask your existing or other nearby letting agents if they have any landlords looking to buy (but check first that your deposit protection and safety certificates are valid).
  
• For selling on the open market, use an estate agent who handles both sales and lettings to widen your market of homebuyers and landlords.

In terms of who’ll pay more, there’s no definitive answer because so much depends on the makeup of a property. As an example, fire doors and lobbies mean more costs for homebuyers to remove them, but they could be a convenient time-saver for landlords. So ask agents for advice.

What’s your next step?

If you own a rental property in Benfleet, Basildon or Wickford that you’d like to sell or make more profitable, we’re here to help.

To find out if one of our landlords wants to buy your investment, or how you can increase your yield, call us on 01268 944104 or drop us a line at hello@vesta-essex.co.uk for a chat with our team.