Warning: Are landlords being encouraged to sell too early?

Warning: Are landlords being encouraged to sell too early?

9:30 AM, 4th April 2024, About 3 weeks ago

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By now you’ve probably heard of Landlord Sales Agency, and our articles that suggest the market is in favour of landlords selling. But is this a genuine concern or is it another strategy designed to get landlords to ‘sell for less’?

Recently a landlord reached out to us to question whether the buy-to-let industry really is in trouble, or whether landlords need to be wary of “selling now.” We put his questions to Landlord Sales Agency CEO, David Coughlin to ask: do landlords really need to sell?

  • Recently articles have suggested that landlords are encouraging us to ‘sell all our properties now.’ Is this a real concern? Or are these articles scaremongering landlords into selling early?

David Coughlin: If you take a look at the information online – it says more Landlords than ever are looking to sell.  In fact, so much so that at the start of this year, landlords were invited to a forum organised by a council’s own private lettings service and the NRLA. Landlord Today recently reported that the council – Ashford – held the event amid an increase in the number of private landlords selling their rental properties and said: “The sector has experienced many changes in recent years, and we continue to see a fall in the number of landlords due to increased regulatory pressures.”

Why are landlords selling? Reasons include regulations (a recent survey conducted by Propertymark reported widespread concern over the abolition of Section 21 notices and the termination of fixed-term tenancies, with 72% and 69% of landlords respectively troubled by these developments), Section 24 tax and the tax burdens they’re getting.

On top of this you have interest rates going up and many are on standard variable interest – plus they’ve got less money coming in – the money going out on the mortgages is so high that they’ve got less money left over.

This means the profits after they pay everything are whittled away. The only way they’ve got to pay the bills is to sell some properties to raise the cash, to raise the equity, to pay the bills. They’ve got equity in some properties over the years, they’re getting towards retirement, they’re tired, so a lot of that market is looking to exit from that and sell.

What we’re doing within that market are helping those landlords. Irrespective of whether they’re financially well off or not, some of them need help selling tenanted properties, or properties that need work, and for some of these landlords, in certain circumstances, we’re a really good option for a landlord who needs a one-stop-shop – a landlord who might have properties all over the country who just needs to go to one company to help.

We don’t take on every landlord’s portfolio, just the ones that are the right fit that could benefit from our help. It might not even be to “get out” of being a landlord, sometimes the landlords who approach us want to release equity and buy some more in better locations. So when we say landlords are looking to sell, there are various motivators as to why that’s happening.

If you look to industry experts such as Paul Shamplina and resources provided by the NRLA, their stats are all saying the same thing. There’s definitely an increase in landlords looking to sell.

  • If the portfolio landlord industry is “dead” then why are so many people buying our buy-to-lets also landlords? Surely they’d be bought by homeowners instead?

 David Coughlin: Why are the people who are buying landlords? The answer is I’m 54, I had 150 properties and I’ve sold a large chunk of them in the last few years, I’ve currently got another 20 on the market so I can get my portfolio down to the last 30 good ones that are lower leveraged, release a load of money in the bank, and be less stressed.

I’m selling 120 properties in order to release money in a 3 to 4 year project. By the end of this year I’ll have sold the ones I wanted to, but still have some ‘dregs’ in there that I’ll sell when the tenants are ready to move out. The people who are buying these properties – if they’re vacant they can be homeowners, and if they’re tenanted, they can be picked up by landlords.

These landlords are new landlords, usually in their 30s or 40s. They’re younger than me and they’re trying to get on the property ladder. Also with the money I’ve got, and others have got, it’s not that they’re not buying new properties, they’re just looking to make savvier decisions and potentially reinvest that money to flip properties or buy land.

The key here is just to get rid of the properties sitting in buy-to-lets that are only making a couple of hundred pounds a month. There are a lot of experienced landlords who are trying to get out of the basic market, and are getting a bit more sophisticated in what they’re doing – such as the build to rent market.

They just want to get out of the basic level of the property industry such as buy-to-lets. Other landlords are getting into buying commercial properties and converting them to residential. This isn’t about exiting the market completely, for those that still want to be in it, it’s about exiting the basic landlord market, and reinvesting money with lessons learnt to get stuff that’s more profitable and less hassle.

  • Do landlords need to be careful? If they sell through portfolio exit companies, are they in danger of selling at ‘knock down’ prices? Shouldn’t this be a service reserved for landlords in serious distress?

David Coughlin: Most experienced portfolio landlords know their options. They know that they can sell at auctions and estate agents. So at any point in time where they’re thinking of selling their properties, the majority know what their options are. They also know that if they want to sell a property that’s tenanted quickly, then generally speaking they might need to take a hit on the price that they want to get.

What we’re saying with our landlords and sellers is that rather than setting a reserve price at auction which might be 70-75% of the price that you might get at an Estate Agent, we try to get them a higher price because we’re experts at selling tenanted properties – we usually get 80-85% of the market value that you might get at an Estate Agent if you left it to them to try and evict your tenants and then sell. Most landlords know that, and most landlords have the knowledge to make informed decisions.

Our selling process is a niche for landlords who understand the market. I’m doing it myself so I know that if it were me, I’d take that option. We simply offer this for other landlords like myself. Out of the chunk of properties I’ve sold, I’ve sold the majority of them through the local agents because I’ve had the time to do it, but it’s been a 2 to 3 year project to do that, and therefore has come at a time cost – some landlords just want the sale faster.

  • What would you say to a landlord who’s been moving with the times, switching from private ownership to a limited company, who’s reduced their portfolio for tax planning purposes, but who doesn’t believe they need to sell because of ‘the industry dying’?

David Coughlin: I’d say, if you’ve done all that, you’re doing what I’m doing and what other landlords are actually doing. You’re selling down your portfolio after being a landlord for 40 years because of tax and the market. You’re selling now, and a major reason is likely because you’re selling in your personal name. You might have even sold some of your properties to other landlords too, and that’s irrespective of whether you believe the landlord industry is “dying” or not. This is exactly what we’re talking about.

A lot of the Property118 landlords we sell for are professional landlords who have been in the market for a long time, but they still approach us because they’re busy, they’ve got better things to do, and they want help so they can focus on other things. Some of them after speaking to us – 1 in 15 or 20 of these landlords who speak to us – like what we do and decide to sell through us. By and large, people are happy with what we do because we take away all the hassle for them.

We try to make sure the deal works for everybody, including the tenant. Our goal is to get a “win-win-win” for the buyer, seller and tenant, and we put a lot of time and effort in to navigate that process. We focus solely on that, and that’s the service you get when you come to us.

  • Can landlords navigate the market without having to sell, by approaching the industry professionally and making carefully informed business decisions?

 David Coughlin: There is actually a “PPI moment” happening right now which is that whilst interest rates are high, whilst people have bought in their private names, whilst there’s tax, Section 24 uncertainty, Section 21 and incorporations going on, the solutions that people used previously that they thought might be a solution, might not be a solution now.

What I mean is, now they’re looking to sell for financial and tax planning for them and their families to eliminate the risk. That started in earnest two years ago, and accelerated last year when interest levels rose, and you can’t sell them fast. It took me 4 years to sell a significant chunk of mine. In the last three years there’s been an average of 179,116 landlord sales per year as reported by ONS & Hamptons.

That is the bubble. That is the “PPI moment” – and once they’ve sold it’ll be back to a normal market again. The “baby boomers” will be out of the market. We’re trying to get the message out to other landlords like myself that we can help them.

  • What about landlords who want to stay in the business? Surely now is the best time with so many tenants available and with letting agencies to help you manage tenants, rents and repairs?

David Coughlin: Agreed with all of that. For those in strong positions, you can let properties out now one day, and have it tenanted the following day. We’ve heard of some landlords who have waiting lists of 80 people wanting to rent. You’re getting the best tenants now.

  • How can landlords stay informed to make the best decisions about whether or not to sell? There are several organisations and magazines that are reporting changes to the rental market and to Government.

 David Coughlin: Organisations such as the NRLA and LandlordZONE are fantastic – use all of these guys to stay informed. They’ve got great advice to help you stay in the know. Just make sure you understand all the rules in case you ever need to take back possession of your properties so that your paperwork doesn’t get thrown out. By working with professional solicitors, you can overcome this.

Being a landlord right now isn’t all doom and gloom. In fact for many, it’s a great time. There’s less competition because there’s potentially more landlords selling more tenanted properties and therefore there’s less buy-to-lets out there, resulting in more tenants to go around. It’s not for the faint hearted, it’s more challenging, but the rents are higher.

It just needs to be more professional than it’s ever been, and you need to make sure you hold on to it for as long as you can so that in 20 or 30 years the properties increase in value and then, when you’re ready, hopefully you’ve made a nice profit on the rents, on the capital gains, and you can sell.

In a nutshell, we’re here to market to landlords who want to sell. Half of the people who want to buy are homeowners, half are landlords, and we bid them against each other and manage all of that to get you the higher profits.

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