If you’re thinking ‘what is the best way for me to sell my portfolio of buy to let properties?’ you’ve come to the right place. Whether you’ve got a few or lots of properties, we’ll look at how you can sell a portfolio of houses or flats, the tax implications and other costs to consider, and what happens if you’ve got tenants.
How do I sell a property portfolio? What are my options?
There are a number of options available to you, but the size of your portfolio will have a bearing on the method that’s right for you.
Can I sell my portfolio by myself?
Selling your whole property portfolio on your own may sound daunting but it doesn’t have to be that way. There are two main methods that you can use.
The first involves advertising via an online estate agent but doing all the work yourself so that you reduce the fees that’ll need to be paid. Using this method would give you access to the large house selling websites.
Alternatively, you could use your personal network to find a buyer. Many landlords know other landlords or people that invest in property. If this is the case, and you know other landlords, you could find out if they’re interested in buying your portfolio. The size of your property portfolio, their location, condition, and the type of properties you own will affect the type of landlord who may be interested. If you sell to another landlord that’s looking to expand their own investment portfolio, they may be happy to take on the properties with sitting tenants because it saves them having to find new tenants. If this is the case, the new landlord needs to be made aware of the tenancy agreement in place.
Finally, you could speak to your tenants, explain your situation and ask if they would be interested in purchasing from you. It would save them having to relocate and you know that they like it because they already live there!
Should I sell via a landlord-to-landlord service?
There are UK property agents that are specifically set up to sell directly from one landlord to another. Using one of these companies will usually mean paying an agent’s commission, but it could be worth calculating if this is viable for you.
Can I sell via a business broker?
Business brokers will advertise residential property portfolios for sale. They’re similar to an estate agent, but operate for businesses.
Business brokers are professionals that help people to buy and sell businesses. And because your property portfolio generates an income from rent, you can think of it as a business rather than a collection of houses. The business broker will take a fee for their commission and this can be around 10% but it’s best to check the figures before you enter into any agreements.
Can I use a cash investor to buy my portfolio?
This option will mean you have an investor with cash to buy your whole property portfolio at once. For this to happen, you can expect to have to lower the price of your portfolio if an investor or developer is to pay a cash lump sum.
Benefits of choosing this option are that the sale will be completed quickly, and you won’t have to disrupt your tenants by hosting multiple viewings. What’s more, you’ll be getting cash for the sale of your property portfolio so that eliminates the wait of them raising the capital. Their money is available immediately and that will reduce delays.
Will I be able to sell to a housing associations or local authority?
You could investigate whether you could sell your portfolio to the council; either with or without tenants. Housing associations and local authorities will have a strict budget so although they could potentially purchase your property portfolio quickly, it could be at below market value.
What do I need to know about selling via an auction house?
Auction catalogues and websites for property auction houses often list property portfolios for sale alongside individual properties. These can be houses and flats, commercial premises (such as pubs, clubs and hotels), commercial property businesses, and land that’s suitable for development.
The entire auctioning process for any auction lot can take around 5 to 10 weeks to complete. This includes a month before the auction date (for viewings) and a month afterwards. The main advantage of selling a property portfolio at auction is that as soon as the gavel drops, a contract is created. This means there’s a commitment and a definite sale so there are no U-turns for the buyer or seller of the property.
When the gavel has dropped, the purchaser will have to pay a deposit (usually 10%) to the auctioneer. They will then have to complete the sale (by paying the outstanding 90% balance) within 28 days from the date of the auction. If the buyer does not complete the sale within the timeframe, they are likely to lose their 10% deposit.
To help you choose an auctioneer, you’ll want to read reviews or use a recommended auction house that specialises in the area that suits what you’re selling (such as property portfolios, or commercial units for example). You’ll also want to request a selling quotation so that you can compare it with other auction property services’ fees and see how much it’ll cost you to sell at an auction. Catalogue listing and valuation fees are common.
Your choice of auctioneer may also depend on where you live or where the portfolio is located.
If you’re uncertain about anything, any established auctioneer will be able to fully explain their selling process to you so that you can get a thorough understanding.
The good thing about auctions is that they’re often online, so your buyer could be anywhere in the world. The bad thing is that you could end up selling for less than you’d hoped.
Can I sell via a high street estate agent?
It’s more common for estate agents to sell individual houses for home-owners and investors than it is for them to market entire property portfolios. However, you could find an estate agent that is willing to take on all of your properties.
Alternatively, you could consider converting each property back to a residential dwelling and selling the house or flat to prospective homeowners instead. Of course, you’ll need to give notice to tenants and work around these timelines.
When using an estate agent, it’s important to choose carefully and make sure you completely understand their fees. After all, you’ll be giving them a lot of business. Many estate agents work on sales commission charged to sellers (not buyers), so it could be expensive for you to sell your entire portfolio this way. However, it could be that you can negotiate a discount.
How about selling via an online estate agent?
This is where you can advertise via an online estate agent and they do the work for you. It’s similar to using a high street agent, but will usually be less expensive. As with the high street agents, you’ll need to check that they can handle your whole portfolio and also ascertain the fees that are involved.
Should I sell to a property buying company?
A ‘we buy any house for cash’ type company may be able to buy some or all of your properties. This could be useful to you if there are debts to pay, money is needed to put back into the business, you’re emigrating, unwell, or any other reason where you want a quick and guaranteed sale.
It’s unlikely that you’ll get full market value as many cash buying companies offer less than the value of the property. However, they usually pay all the fees so you’ll be making a saving there. You’ll need to do the sums and see if this could bring in the money you need.
What can I do to prepare for a sale?
For most of the methods listed above, you’ll want to prepare your properties for sale and present them to show off their best features. Assuming you can gain access to all areas of the properties, take the time to have a thorough walkthrough and note repairs that are required. First impressions are very important for a sale, so have a look at the front of the property and make sure everything is in good order, presentable and working, and the garden is neat and tidy.
Here are six other points to think about.
An unpleasant smell is guaranteed to be one of the first things that someone will notice when they enter a new space and could put them off straight away. You don’t want to turn them off before they put both feet into the property! Try opening windows in the lead-up to viewings and using high-quality aerosols that add a pleasant scent to the air.
This will give the impression that there is no storage space in the property. Not a thought you want potential buyers to be having.
3. Poor maintenance
Whether it’s cupboard doors hanging off, broken stair rails, damaged windows, unreliable heating, or even lighting that doesn’t work, it suggests you’re a landlord that doesn’t care. And it’s when viewers can see these things that haven’t been fixed that they wonder what hasn’t been repaired that they can’t see. That’s why it’s important to do a thorough walkthrough with a notepad. If you can’t do the repairs yourself, find a local handyman that can help you to prepare your properties for sale.
4. Poor lighting
Often overlooked but lighting is very important both inside and out. It can give a feeling of security outside, making viewers feel space in the space. Inside, a dimly lit property will not feel inviting and welcoming. Having all bulbs functioning and giving a warm light will make your properties feel more homely.
5. Stained carpets
It’s the strange stains that can spoil a room and attract attention for all the wrong reasons; taking attention away from features you’d like to highlight, such as high ceilings, bay windows or period features for example. Steam cleaning carpets between tenancies is important to keep carpets fresh and clean and it can be done quickly.
6. Mould in the bathroom
This will be a real turn off for viewers, but it isn’t all that difficult to remedy. Take your time to scrub the affected area and investigate the cause of the mould problem. You might find that keeping the bathroom window open a small way fixes it for good.
What are common reasons for selling a portfolio of properties?
Your reason for selling is invariably going to influence the sales method you select since you may need to free up the equity quickly, or you could be in a position where you can wait. Common reasons for choosing to sell a property portfolio include:
- Career change
- The burden of dealing with difficult tenants
- Impact on earnings due to Section 24 Tax (more on this later)
- Improvements / modernisation will be too expensive
- Management costs are increasing
Or perhaps you are what’s referred to as an ‘accidental landlord’. This title is given to those people that have kept a property – perhaps because it was difficult to sell at the time – and it was rented out instead of being sold.
Whatever your reason for sale, you’ll have to consider your existing tenants. If you have a buy-to-let portfolio for sale, some investors will happily take over your portfolio with sitting tenants, whilst others may want the properties to be vacant.
I’ve got sitting tenants – is that going to be a problem?
You might think that having a tenant in situ (under the term of an Assured Shorthold Tenancy, or AST) would make a property more desirable as it means a ready-made and guaranteed income for them, but your potential buyers might not see it this way. However, a portfolio with sitting tenants isn’t unsellable; it just depends upon the types of property and the individual buyer.
‘Regular’ tenants are in my property – is that okay?
When the term of an AST (normally six months) has lapsed, the tenancy will become a periodic tenancy; sometimes referred to as a ‘rolling contract’. If you have tenants in this situation, it reduces the risk for any landlord making it easier for you to sell than if the tenant was under the original AST. That’s because if the tenant proves to be problematic, the new owner can evict them at the end of the required notice period.
Disruption to your tenants
Remember that if you’re putting your property or properties on the market, there could well be viewings taking place and this could be inconvenient for your tenants.
There could be any number of legitimate reasons for your tenant to not want to allow viewings, such as a new baby in the home, they’re grieving, recovering from illness, or they work shift patterns. Having a good relationship with the tenant throughout the tenancy will make this less of an issue, but they could exercise their right to not co-operate, particularly if they think they are going to be evicted when you sell.
Why should I keep on my tenants?
There are a number of good reasons not to evict your tenants and to find a buyer with your tenants in place.
The first reason is cash flow. If you evict your tenants, you’ll cut your income to zero while still having to pay for the mortgage. And if the sale falls through, you could be paying for an empty property for a long time.
Secondly is a human aspect. Whilst young and single people may easily be able to find a new place to live, a family with children will have ties to local schools and it’ll take them longer to relocate. You might therefore want to give them the opportunity to stay in your house that they have made their home.
Finally, it’ll take you considerable time and energy to evict tenants so you’ll want to balance up the speed of a sale versus the amount of work that is required.
Also, when you come to sell a rental property, it’s important to keep in mind Section 24 Tax (also known as ‘tenant tax’).
What is ‘Section 24’?
This was introduced in 2017 and removed a landlord’s right to deduct mortgage interest and other financial costs from their rental income before calculating their tax liability. As such, Section 24 has consequences for landlords who own their properties in their own name, but won’t have such an impact on those who operate through a limited company. This is because Section 24 can put some landlords into a higher tax bracket due to them not being able to deduct mortgage expenses from rental income to reduce their tax bill.
Instead of a deduction from your rental income, landlords will receive a tax-credit that’s based on 20% of the mortgage interest payments. This isn’t a problem for those in the basic rate tax band, but individuals close to the top of the basic rate band could end up paying tax at the higher rate.
Are there other tax implications of selling my portfolio?
When you sell your portfolio – whichever method you choose – you’ll be liable for Capital Gains Tax (referred to as CGT). It’s paid on your total gains above an annual tax-free allowance when you sell (or ‘dispose of’) property that is not your main home. The only deduction you can make from your CGT profit is the Capital Gains Tax free allowance which is £12,300 for the tax year 2021/2022.
It’s for this reason that having a property portfolio exit strategy can be useful if you’re not in a rush to sell quickly. For example, selling one property per year – rather than selling multiple properties all at once – can minimise the CGT you’ll need to pay.
What are the additional costs I need to consider?
With the exception of genuine cash buyers and fast sale specialists that do not charge you fees to sell your property or properties, there will be fees that come with each different method of sale (for example, estate agency fees, legal fees, auction listing fees or broker fees). However, it’s important to remember the other costs that you may face.
Will I have to pay early repayment charges?
Fixed and discounted variable rate mortgage lenders will impose a charge if you repay the full amount early or pay a lump sum (even if it doesn’t clear the balance). This will usually be a percentage of the outstanding loan and could have an impact on your profits. Check with your lender and ask them for a loan redemption statement to help you with the calculations.
What are exit fees?
These are another charge imposed by mortgage lenders is if you finish paying your mortgage or switch your mortgage to another lender before the end of the term.
Do I have to have indemnity insurance?
This is a type of insurance that is taken out to deal with a defect in the title of the property being sold (such as a missing document of title). As a way to complete the transaction, but also satisfy the new buyer, a solicitor may suggest that you take out an indemnity policy to pay the buyer if the defect becomes a problem.
Am I liable for arrears?
If there are any arrears on your mortgage, your services charges, or any other charges on your property’s title, the proceeds of the sale will be used to pay them.
We hope this article has given you some ideas to ponder and you’re now able to make an informed decision and crunch some numbers to calculate how much you need when you sell your portfolio of properties. If you have any questions about selling your portfolio to a property buying company, contact us and we’ll be happy to have a chat with you.