The True Cost of Selling a Rental Property with Vacant Possession
It’s well established the rental market is seeing an exodus of landlords. Many are considering selling due to worries about compliance with the Renters' Rights Bill, others are juggling Making Tax Digital, increased compliance requirements, rising costs, or simply deciding that now is the right time to reduce their portfolio and, with it, their stress levels.
What many landlords don't do is calculate the true cost of obtaining vacant possession before putting a property on the market.
On paper it sounds simple. Under the latest legislation:
Serve notice
Tenant moves out
Property is sold
In reality, it can be a lengthy and expensive process that could look very different: (show graphics from comparison caro here)
The cost of regaining possession
If a tenant leaves when asked, the process can be relatively straightforward.
If they don't, possession proceedings can take several months.
Many landlords report timescales of between three and eight months from notice to possession, depending on circumstances.
Potential costs include:
Legal fees
Court costs
Bailiff fees
Lost rent if tenants stop paying
Mortgage payments during the process
Even where tenants continue paying rent as normal, many landlords find themselves carrying significant uncertainty while waiting for possession.
Preparing the property for sale
Once the property is empty, the next costs begin.
Most landlords will spend money preparing the property for sale.
This may include:
Decorating
Flooring repairs or replacement
Garden clearance
Minor maintenance works
Professional cleaning
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I allocate an absolute minimum of £3,000 to prepare a property for sale. Anywhere between £3,000 to £5,000 is reasonable.
Even where the tenants leaving is a smooth process, and the property reaches the market without issue, a sale is not guaranteed.
There is always the risk of:
Price reduction negotiations
Slow markets
Sales falling through
Chains collapsing
It is not unusual for several months to pass between marketing and completion.
During that period, the costs persist!
The financial cost of selling an empty property
Void periods create additional expenses such as:
Ongoing mortgage payments
Council tax (no longer reduced by 50% for empty properties)
Daily utility standing charges (higher than ever!)
Higher insurance premiums apply if the property has been vacant for more than 30 days.
The emotional and administrative cost of selling an empty property
The financial costs are only part of the picture, Landlords often underestimate the time involved.
There are calls with agents, solicitors, contractors and insurers.
There are property visits once a month to meet insurance requirements for empty properties, sales negotiations and paperwork.
There is uncertainty around timescales and concerns about whether a buyer will proceed, but there is no backing out. After recovering possession using the sale ground, landlords cannot re-let the property for 12 months under the Renters' Rights Act.
For landlords looking to simplify their lives by selling up, the sales process can provide the very opposite.
An alternative some landlords are exploring
Many tenants assume home ownership is out of reach. However, mortgage products continue to evolve, with many high street lenders now offering 5% deposit mortgages.
I have encountered several landlords who have weighed up the potential financial and mental costs and established what that is worth to them, then offered that as a discount to their sitting tenants.
The combination of a low deposit, an undervalued property (that is already of the right size, location and style for the tenant), along with zero moving costs makes the sale hugely attractive to the tenant, and likely offers an opportunity at home ownership that may not have been possible to them before.
In this scenario, the landlord may be able to avoid:
Possession costs
Refurbishment costs
Void periods
Marketing expenses
Ongoing holding costs
They also achieve a quicker, simpler and less stressful sale.
Of course, it won't work in every situation. But before serving notice, it may be worth having a conversation.