Selling a tenanted property portfolio – READERS QUESTION

by Readers Question

10:06 AM, 18th August 2012
About 9 years ago

Selling a tenanted property portfolio – READERS QUESTION

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Selling a tenanted property portfolio – READERS QUESTION

My brother and I have decided to sell 9 of the properties in our portfolio. The purpose is to raise additional working capital to do more local refurb and flip deals. We are making between £30,000 and £60,000 a deal but we can only do one or two a year within our current resources. Therefore, selling some of our lower yielding properties furthest from home seems to make sense.

We have owned all nine properties that we are selling for quite a few years and they all have a good amount of equity in them. They are all nicely decirated and should sell easily to first time buyers. We are in no rush so we certainly don’t plan to sell them as a portfolio or to other investors as they will want a big discount and we want full market value. Our plan was to try to do a deal with one National Estate Agent in order to negotiate the fees right down but having read Trevor’s post last night that’s made us re-think that strategy. Thanks Trevor if you are reading this, some very useful tips there mate!

We don’t want to serve notice on the tenants until the properties are under offer and well on there way to exchange as we need the rental income to pay the mortgages. Selling a tenanted property portfolio - READERS QUESTION

Our worries are:-

  1. We have to tell the tenants what we are doing
  2. We need the tenants to co-operate on viewings
  3. What if the tenants are awkward about moving out when we need them to?
  4. How can we get around serving two months notice on the tenants?
My brother and I have spoken to a few other landlords who have been in a similar position and there seems to be a common strategic theme.

Our plan, at the moment, is to go and visit every tenant and explain the situation. We think it’s better that way as emails or phone calls can be misinterpreted. Face to face allows us to see their reactions to what we are telling them. We are hoping they will see reason and that we can also incentivise them by offering to refund three times their deposit if they help us to sell the property and move out on the agreed date. If the property is sold to another investor who is happy for them to stay we will still refund three times their deposit. Obviously we will assure them that we will give them as much notice as possible but we will explain that it may only be a few weeks.

We are interested whether any readers of Property118 have been in a similar position, what their strategies were and whether they were successful. We are also keen to know whether there are any potential holes in our plan.

Looking forward to reading the responses.

Adam

Comments

11:47 AM, 19th August 2012
About 9 years ago

Three times the deposit as a gift for cooperation is unnecessary. £1,000 as a gift for cooperation has worked well for me selling property that tenants are occupying without losing them. A £1,000 pound handshake on their final day of departure is well received by tenants. However not all will agree, but if not you could up the gift price to £1,500. It worked well for me. Regards The Property Maverick

Mark Alexander

11:57 AM, 19th August 2012
About 9 years ago

I suppose it depends where the properties are and how much the deposits were in the first place. If they are let for £350 a month and the typical one months rent was taken as a deposit then £1,000 to £1,500 would be about right, possibly even a bit generous. However, if they are in prime London and the rents are say £750 per week and Adam and his brother had taken two months rent as a deposit then it would be incredibly expensive to offer an incentive of three times deposit. Personally, I would start low and negotiate upwards, perhaps just explaining the position to the tenants and asking what they would consider to be fair. They might just say something along the lines of "I understand, so long as you refund my deposit, buy me a beer and give me a good reference I will be happy". It's good to have a figure in mind though.

9:33 AM, 20th August 2012
About 9 years ago

P.S. You need to market your properties at realistic prices, you need to leave something in it for the buyer; it really is a buyers market right now and they are looking for bargains whether home buyers or investors.

Be prepared for low offers and remember that selling values are being constrained by repossession properties, which is not so apparent in the South but is very apparent in the North. I have just sold two properties, one to the tenant in situ and the other to a home buyer, but in both cases it was a hard fought price negotiation and sale. You just can't achieve a sale in this market unless its a win win situation on both sides.

Another good tip is get professional photos done of the property and use some poetic rhetoric when scripting the property sales text; estate agents can't write attractive sales copy for toffee I'm afraid. If necessary buy yourself a book on writing better sales copy by say Andy Maslen. Two apartments in Leeds were getting no viewings so I changed the pictures and wrote new sales copy and at least its now bringing in some viewings; you must be inventive and proactive.

Regards The Property Maverick

13:17 PM, 20th August 2012
About 9 years ago

Tenants will need to find somewhere else to live; finding a rental that starts on the same day as a section 21 ends is very hard. Therefore why not offer:

* 2 months’ notice of having to leave (you got to give this
anyway)
* May leave at any time within the notice without having to pay
rent to the end

* And £1000 on day they leave provided they leave before the S21
is up
* You will pay the deposit for them on the new property as a
loan to be repay by the £1000 and the deposit you took. (Remove cash flow problems)

19:28 PM, 20th August 2012
About 9 years ago

We are currently buying a tenanted property, which we will live in as our main home, where the landlords situation is that He needs the rental income from the rental to pay his mortgage. Our solicitor is unhappy to exchange without vacant possession however, we have agreed that He can give the tenant the required notice on exchange of contracts.
There are still some issues around the tenant vacating, the property being cleaned and our insurance risks. but we seem to be heading in the right direction.

Ian Pye

21:36 PM, 20th August 2012
About 9 years ago

Thius is a very interesting issue.
My son and his family(4 children), has been a tenant in a house for 4 yrs ( in the SE) and he has just been advised by the landlord that the property is going to be sold.The tenancy agreement has been rolled over to a 1 month rolling notice period.He and his wife are now worried that if the property sells quickly they will not be able to find a 4 bed house to rent within the timescale, demanded by the landlord.There are virtually no 4 bed properties for rent in the area.
My son would consider buying the property, but with a poor credit rating due to problems 2 yrs ago but been good since., would find it difficult to get a mortgage.I had planned to help them buy a property in 2014/15, when their credit score will be much higher.
Also the indicated price by the agent is far too high ( 50K higher than I would pay,if I was buying it for my portfolio,)
The landlord clearly expects them to move out at 1 months notice, which is not realistic for a family of 6.They are now looking for somewhere urgently and if they find somwhere, then they will move out leaving the landlord without the rental income.
I do not expect the poperty to sell at the indicated price, but my opinion does not help my son and his wife, because of their fear of suddenly being told to leave.
Any suggestions ?

Mark Alexander

22:37 PM, 20th August 2012
About 9 years ago

The law is on your sons side to some extent in that he only has to give the landlord one months notice but the landlord must give him at least two months notice from the next rent due date before he can even consider going to court to get a legal eviction. If the landlord forces your son and his family to leave before an eviction notice has been obtained that would be an illegal eviction. What incentive is the landlord offering to keep your son and his family sweet?

Mark Alexander

23:37 PM, 20th August 2012
About 9 years ago

Interesting to hear this from a different angle Andrew. Presumably the landlord is attempting to time the completion date with the tenants vacating the property. This is obviously Adam's concern as he wouldn't know how long to leave before exchange of contract and the completion date. The tenant could leave with a months notice but Adam will have to give at least two months notice, then possibly have to go to court to get an eviction notice and instruct bailiffs which could easily be another two months. On that basis I can hardly blame him for meeting with his tenants and offering them an incentive to move at short notice. Do you know whether the guy who is selling his property to you is doing something similar?

10:45 AM, 21st August 2012
About 9 years ago

If the tenant doesn't take the bribe what can you do apart from commencing eviction proceedings.
Surely you could exchange on the basis that when the property becomes vacant, completion may occur.
This could be months later if eviction has to be processed or earlier if the tenant agrees to go.
Big problem though is that mortgage offers only last about 3 months and if the tenant hasn't gone or been evicted by then the buyer probably disappears.
I'd be inclined to take out an RGI policy on the tenant.
Issue a Section 21and commence proeddings to evict.
This on the basis that you might lose £4000 in rent but would be guaranteed to obtain possession rather than the bribery route as the tenant might choose to ignore any private agreement.
Remember ONLY an ennforced eviction order can facilitate possession of your property.
You could even ofer to rent somewhere for the property puchaser whilst you evict your tenant.
It is though an awkward situation and I don't think there is any right or wrong way.
You just have to take your best shot at a judgment of the situation.

14:54 PM, 21st August 2012
About 9 years ago

I see the problem being the other way round; to get a good price the property may have to be on the market for 6 months. How you do you keep a tenant for that time, and get the tenant to help with viewings.

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