Selling a Rental Property

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Rental properties are flats, houses and other buildings that the owner, also known as the landlord, lets other people live in for a set amount of months or years in exchange for paying them a regular rent. There can be some hurdles involved with trying to find a buyer for a rental property, and this guide explains them as well as outlining how to best get a fast and fair sale.

1. When is a home considered to be a rental property?
2. Selling a rental property that currently has tenants
3. Reasons why buyers might want your rental property
4. Potential problems with selling a rental property
5. Paying Capital Gains Tax for the sale of your rental home
6. Your choices for how to sell your rental house or flat
7. Questions and answers about selling a rental property

When is a home considered to be a rental property?

Rental properties in the UK can be many different types, ages, conditions, sizes, locations and shapes, but they all have a few essential elements and conditions compared to other homes.

They are homes that someone owns, often as a freeholder which means they outright own the building and the land on which it sits, or sometimes as a leaseholder where their ownership is only over the home itself for a certain number of years. The owner then lets other people live in the property in exchanging for them paying a rent charged either monthly or annually.

These renters, also known as tenants, will usually sign a legally binding rental agreement with the property owner that includes crucial details such as how many months or years the tenants will get to live in the home, what responsibilities the owner, also known as the landlord, will have for keeping the house or flat in a habitable condition, and many other important elements.

Some rental properties are single units owned by one person that helps them to generate extra income each month through the rent payments that they receive. Other rental properties can be entire blocks of flats that are owned by an investor who is building their property portfolio and making much more money.

Demand for rental properties has shown relatively consistent growth in recent years throughout the UK, with some news report saying that it has jumped at least 23 percent from 2021 to 2022. Many people cannot afford a mortgage to buy a property, and that’s why there will always be demand from people wanting to rent instead.

Whatever situation you’re in with your rental house or flat, this guide will help you learn about the process of trying to sell rental property, and the ideal way to get a competitive and rapid sale.

Selling a rental property that currently has tenants

Ideally, your rental property will have current tenants at the time that you try to sell it, because this will help potential buyers see that the home is one in which people want to live.

But can you legally proceed with trying to sell the rental flat or house if you’ve currently got tenants? The short answer is yes, but there are few issues that you should learn.

The easiest way to approach this situation is sometimes to give the people currently renting your home the right of first refusal on whether or not they want to buy it. If they’re interested, this will make the selling process very simple because you can just work directly with them to complete the sale.

And if they’re not looking to purchase the home, you can then look into trying to find a buyer, ideally one who will take over as the tenants’ new landlord. Hopefully whoever is looking to buy the flat or house is also open to simply continuing the existing rental agreement for them.

In the event that you have problem tenants who refuse to leave the home, or a buyer demands that the property be vacant for them to purchase it, you might have to resort to pursuing a Section 21 notice. This is effectively a two month notice for existing tenants to leave the home because you want to reclaim complete ownership of it. Beware that some tenants might even fight this notice, so in a worst case scenario you could have to resort to litigation to evict them.

Reasons why buyers might want your rental property

There are often pros and cons with trying to sell any type of property, and this is true when looking for a buyer for your rental home. Be sure to read the UK Government guide on renting property in the UK when selling to refresh yourself on the latest laws. Having a good understanding of these reasons may help to increase your prospects of selling, because you can focus on promoting the home’s best features to any prospective buyers.

Extra income: One of the biggest draws for buyers interested in rental homes is the ability to make extra income through the rental payments they will receive from tenants. That’s why these properties can be a good investment and might be easier to sell in areas where rental homes are in higher demand, because greater demand typically means that landlords can charge more from their tenants.

Tax benefits: As well as the potential extra income that a buyer would be able to make from owning your property and being the landlord, they might also be able to take advantage of a host of tax reduction benefits for costs associated with the flat or house. This can include everything from the utilities paid through to installing new appliances and more, and it’s possible that this could make you rental home appear even more attractive to a genuine buyer.

Enviable location: Beyond the idea of making money from rental payments, some buyers could want to purchase your property because it’s located in an area where this is high demand for homes. In this scenario, the buyer would primarily want to own your house or flat for a few years, with the intention of putting it back on the market later, in the event that the district continues to be desirable for people looking to buy homes.

Potential problems with selling a rental property

Whilst there are several elements of owning a rental property that could make buyers look more favourable at your house or flat, there are also some potential disadvantages. And you might even have experience one or more of these drawbacks during your time as the landlord.

If someone is showing interest in maybe making an offer on your home but raises any of the below concerns, be honest with them about your experience and do not try to hide anything. Withholding important information just to secure a sale can create major legal problems for you in the future if a buyer discovers them later, as they might sue you for penalties.

Stressful work: Being a landlord of a rental property can be a very stressful experience and require you to invest a lot of time and effort. You’ll likely be responsible through the rental agreement for fixing any structural problems or other issues arise, and if you have bad tenants that create conflict with you or their neighbours, this can add to the stress. Many buyers could simply not be willing to take the risk of having to take on all of this additional effort.

Risky investment: There are many people who will buy a rental property in a neighbourhood where demand for homes currently outpaces supply of houses or flats for sale, because they hope this will continue and that they can sell the property at a higher price in the future. But this can also be a risk investment, particularly if an area starts to become less popular and the average sale price of homes drops – a chance some buyers may be unwilling to take.

Increased costs: Although a buyer may hope to make some extra money through the purchase of your home and becoming its landlord, any such profit could be offset by the costs involved in keeping the property in a habitable condition. In the event that appliances break, plumbing overflows, some type of structural problem happens, and many other unforeseeable incidents, the landlord usually has the duty to quickly fix these issues, paying out of their own pocket.

Paying Capital Gains Tax for the sale of your rental home

Having a budget when selling your investment property can be very useful, as you will get to be specific how much time you’re willing to wait to secure a buyer, how much you’re able or willing to pay in commission for selling, and whether you might owe tax to the government after selling.

Capital Gains Tax can often apply with the sale of an asset, which is a tangible valuable item such as a home. If you are subject to the tax, it will be usually be imposed on the profit that you generate from the sale.

Selling property at breakeven or at a loss means you won’t generate any profit, so you usually wouldn’t have to pay any tax. Be sure to read out guide pricing your property right when selling.

Talk to a tax specialist or other financial advisor to learn more about your potential tax liability when selling.

Your choices for how to sell your rental house or flat

If you are prepared to sell your rental property, you will have to decide on which method you want to use for finding a buyer. Typically, people choose between the options of selling alone, selling to a fast home buyer, selling at an auction, or selling through an estate agent.

There are certain benefits associated with each of the four choices, but some of the selections also come with rather notable disadvantages, for example requiring that you pay sizable fees. Take a look at the specifics of the different methods as outlined below, and then find the choice that best matches your needs and situation, such as how quickly you want to sell.

Selling on your own

Trying to sell a rental property on your own can be a time-consuming and stressful experience, as you’ll have to handle the entire process. This includes creating and advertising a listing that describes the home and features photographs of it, organising viewings for possible buyers to tour the property, and hearing offers, ideally advancing one through to completion.

Because of the sheer amount of work involved, you should only consider this approach if you have previously sold a property, or have a friend or family member who has sold a home before and is willing to help you for free. Otherwise, this can be the slowest approach for finding a buyer, and it might be more than a full year before you are able to sell the rental property.

Some owners find that a strong benefit of selling this way is that they get to keep all of the proceeds and don’t have to pay fees to a third party.

However, they might still have to spend a large amount of money on advertising the home, along with having to endure the stress of selling on their own. Instead, they may want to think about selling to a fast property buying company that will not charge them any fees, and that will not require them to do almost any work but still sell their home quickly.

Selling to a fast home buyer

Alternatively, you might want to contact a fast home buyer about selling your rental property. These companies have the funds available to immediately purchase all types of homes, with no waiting for many weeks or months to initially get approval for a mortgage to pay for the transaction. This cuts the average schedule for selling to a quick buyer to just a handful of weeks, which includes every major step through to the exchange of contracts.

In addition to often being the most rapid way to sell a home, reputable quick buyers will refuse to make owners pay any fees when purchasing their properties. LDN Properties, a London-based fast buyer, believes owners deserve to keep all of the sale proceeds.

Unlike some estate agents or auctioneers that only know how to sell particular types of homes, fast buyers are able to consider making fair and speedy offers to buy almost any property no matter its type, size, shape, condition or age. This includes rental homes, but also a long list of other properties such as houses with low Energy Performance Certificate, properties with septic tanks, homes that have an infestation of Japanese knotweed in the garden, flats with elevated levels of asbestos, properties where the owner can’t find the title deeds, airspace / roof space and other scenarios.

When talking with quick home buyers about selling your rental flat or house, always ask if they are officially registered with an independent organisation called The Property Ombudsman (TPO), which writes rules to shield homeowners from fraud in the swift property buying sector. Be careful of selling your property to a company that either cannot prove it belongs to TPO, or that says it refuses to be a member, as these might possibly be scams.

It is simple, free and fast to check the registration status of an individual company by visiting TPO’s website, clicking on the “Find a Member” button located to the left of the main page, and then typing in the name of a quick buyer. If the company is genuinely registered with TPO, such as LDN Properties, then you will immediately be shown their full membership details. If the company is not a member of TPO, then your search will not generate any results.

Selling at an auction

A third way to sell your home is at an auction, where people will hopefully place ever-increasing price bids on the property, and the highest bid at the end of auction is deemed the buyer.

Your aim should usually be to make a profit on the sale, even after paying auctioneer’s fees for the work that they do in preparing and marketing a listing for your home, along with hosting the auction and overseeing a successful sale. Their fee is often based as a percentage of a home’s sale price, but it might be a greater or lesser amount, and you may be able to negotiate a reduced fee.

The auctioneer will ask you to pick a reserve price, and this is the lowest value at which you agree to sell the property. A successful bid is a binding agreement to buy your home, so make sure the reserve price is set correct for you because it may be the only bid you get.

Auctioning may not be the fastest way to sell a home in most cases, because it will take several months. You’ll have a wait of many weeks between when you list the rental property for sale and when the auction takes place. And then if it sells, the buyer generally has about 28 days to sign all of their required paperwork and complete the other steps to finalise the purchase.

Selling through an estate agent

Using an estate agent to sell your rental home can take a very long time, and you should be prepared to wait at least an entire year before you receive a serious offer form a buyer.

Another negative element of selling through an estate agent is that they will charge you fees for the work that they do in trying to find a buyer. They’ll develop a listing for your home, market it in their office, online and in local newspapers, organise viewings for prospective buyers to tour the property’s interior and exterior, and field any offers ideally through to exchange of contracts.

Be cautious of the fact that some estate agents might quote a projected sale price for your home that is far above what they know it would be able to achieve. This is a trick to convince you to sell your property using their services, so that they can profit from the commission they’ll get if they secure a buyer.

To counter this situation, ask multiple estate agents for free sale price quotes for your home. Next, look at the present and past prices of rental homes like your for sale on property websites like Rightmove and Zoopla. Then calculate the average of all the prices, and that amount should be a much more accurate estimate of the viable sale value of your rental flat or house.

Top queries and answers about selling a rental property

Property owners needing to sell quickly often have some questions they need answering, ranging from the house or flat condition required before selling through to selling with tenants. Here are some of the top 7 questions and answers about selling a rental property: