Any experience of selling a flat with a tenant in situ?

[SpringHasSprungTheGrassIsRiz]

I have a BTL (actually, my old flat from pre-marriage) in London. 1 bed, Victorian conversion flat. My fixed rate mortgage comes to an end this year and the likely LEAP in mortgage (interest only) costs means that I don't think I can afford to keep it and let it out. I have a good tenant in place. Has anyone had any experience of selling a flat with a tenant in situ?

So my rough maths tells me that your flat is worth
£520k and your mortgage is £260k
You could get a 5 year fix with The Mortgage Works with a rate of 4.05% with an arrangement fee which could be added to the mortgage of £8k. That would give you a monthly payment of £877.
£1000 near enough if you add the £8k to the monthly payments over 60 months.

But if you raised the rent that would give you plenty to make it worth while given the dire state of the sales market right now. Can completely understand why you'd want to sell but you might be best to keep letting it if you can.

Argh! Such a headache. I really want to be rid of it really as it is stressful. My tenant won't want to buy as she is not British and isn't going to be there forever. In fact all my tenants have been people transiting through London for a few years and so not in the market to buy a flat - but now it seems that all landlords are evil. I'd love to sell - they don't want to buy!

Is that true that your flat is worth £520k ish, with a mortgage of £260k, as a pp suggested; and a current rental of £1400, but potential to go up to £1700? It really doesn’t seem worth it as a rental investment, and any potential landlords will be able to see this, unfortunately. So you will struggle to sell it with a tenant in situ. Unfortunately I think you have to give the tenant notice - this is obviously bad for them, but if you don’t then you are potentially foregoing many many thousands of pounds so they can stay where they are.

You need to look at what the flat is worth, and what rental income that brings in. Near where I live (SE London), flats worth approx £325k can be let for £1750pcm (2 bed). Why would a prospective landlord spend £520k on a flat, to only get £1700pcm? Obviously that is also not factoring in service charges (which can vary hugely).

Also near me, your £260k equity could possibly get you a 1 bed flat, which could prob have a rental income of £1300 - £1400, with no BTL mortgage needed.

You need to sell to an owner-occupier. Really sorry about this (and obviously sorry for the tenant too).

Have you asked tenant if they would like to buy?

Those figures make more sense. I must have my maths wrong 😕

When a LL has a long term T the property often has not been updated or refurbished during the occupation. So the T might be happily living in a 2000s timewarp. Yes they may have had the benefit of below "market" rental. But the LL has the benefit of a good regularly paying tenant. If they had relet the rental several times they would have had to do some redecoration and possibly some expensive replacement of kitches/bathroom/heating etc. So both parties have benefitted from the long stay T. Landlords now have to be careful about suddenly raising the rent to an unsustainable level because its only £47 for the T to apply to the tribunal. That can result in a considerable delay for the LL while the T pays the same rent. And the tribunal cannot raise the rent by more than the LL proposes. So really the T had nothing to lose by appealing to the tribunal.

Costs such as maintanaance, insurance, agents fees etc increase. However these are tax deductables for the LL. They should be passed on to the tax man not the T. A good long stay T is worth their weight in gold and a wise landlord will be prepared to negotiate. Dont kill the golden goose.

@SpringHasSprungTheGrassIsRiz How much is the flat worth, and what is the equity?

Squeezed from all sodding sides.

It's probably worth £450,000 - £500,000 (depending who I talk to). No service charge/ground rent (share of freehold). Long lease. Tenant won't buy.

I want to be rid of it and have more freedom to invest the equity (loan is currently £262k, of course I'd have to factor in CGT and sale price to work out equity so it's hard to tell). But its hardly a seller's market and I am scared of having it sitting empty costing the mortgage and then having to pay full council tax on top, not knowing when it will sell. Add to that, if it is after 1st May (new renters rights) and I evict the tenant as I am going to sell, and then it fails to sell - I cannot let it again for 12 months!!!

Really really sorry, but no landlord is going to buy that. Even putting £400k - £500k in high interest savings accounts would yield a much better return, and for much much less hassle. (£500k at 4% interest would yield approx £1600pcm, prior to tax, with none of the headache being a landlord involves).

So if it is not financially sustainable, then you need to sell. And you need to focus on the best way to achieve as much as you can from the sale, in as quick a time frame as you can. Obviously selling to potential landlords would be out (the value of the flat would need to be much closer to £325k to get Landlord interest I reckon). So it needs to be to owner-occupiers.

So you need to give the tenants notice, then present the flat as well as you can, bearing in mind costs / what other properties are selling for. Staging a couple of rooms (like living room, main bedroom) with furniture, rugs, pictures to make it look eye catching and gorgeous, and making sure you get really really good photos (careful shots taken with colour adjustment etc afterwards) will help get people through the door to view. We rented out our former home, and when we came to sell it, we spent a few weeks when it was empty touching up the decor ourselves (cleaning the walls and painting the woodwork), and buying secondhand habitat & Ikea furniture on eBay to stage it, before getting photos taken and selling.

That is a poor return. I felt sure I must have my maths wrong but it would seem not.
If I evict the tenant as I am going to sell, and then it fails to sell - I cannot let it again for 12 months!!!
If this happens and it's empty, could you Airbnb it until you can let it to longterm tenant again? Don't know if that is allowed but airbnb is a bit of a grey area so you might be ok.

First time buyers who are in rented accommodation may go for it with a tenant in situ. You would have to take a massive hit on price though.

Depends when you bought really for how much it could be worth, with the price appreciation you are expecting I am assuming this was bought a long time ago?

Airbnb is not an easy option - she'd have to pay a management company to manage it and there's no guarantee she'd be able to cover the mortgage that way. It's not worth relying on.

The thing is it is probably not worth £450,000 - £500,000.
Not in this market.
Properties are only worth what people will pay.
It might be worth that to a owner occupier but it may not. It's just a figure the estate agent has slapped on it.

Don't know if it is thing in England but could you put it on at offers over? That way you will get the maximum people are willing to pay but it may well be much lower than the £500k.

Yes, and rates are going to go up if this crisis drags on, but the problem is the OP doesn"t have 500k they have an interest only BTL loan, as I said they need to look at realistic ways to clear their debt, not base their finances on how much a buyer may or may not give them at some random point in the future. The OP should switch the mortgage to re-payment and start using the rent money to make over-payments, don"t increase the rent because the tenant will have loads of options now for other places to rent.

Not an easy option but one possible option for the OP who is stuck between a rock and a hard place. I don't think she says where she lives but it's possible she could manage it as an Airbnb for a short while. I once stayed in one and didn't meet anyone, they gave me a code to get in, still had to be managed of course. No guarantee it would cover the mortgage but a bit more for the pot, like I say, her options seem limited unless she wants to sell at a price people can afford or at a figure that makes sense to a landlord or re-mortgage and put up the rent.

I think I have perhaps not been as clear as I could be in my previous post. I am essentially saying that at that value, and rental income, it is not at all viable as a rental proposition, either for OP, or for anyone buying. So OP should not keep it as a rental property.

Unless a potential landlord can buy it at around £325k - which would mean that OP would take a massive hit when she sells at £325k.

If OP kept the property, and switched it to a repayment mortgage, then I imagine there wouldnt really be any money left from the rental income to make overpayments - at £1400 I doubt OP would even break even, with a mortgage interest rate of 4.5 per cent. Don’t forget, you can’t offset the whole of the mortgage payment against tax any more - you just get a 20 percent relief on the mortgage interest component, but this is applied after tax is paid on the income.

So if monthly rental is £1400pcm, that gives a yearly rental income of £16,800. Minus allowable costs (maintenance / certificates etc), assume £1000pa. If a managing agent is used, then those fees can come off as well, say £1400 pa. Which leaves £14400 taxable annual income.

If OP is a higher rate tax payer, or if the £14400 rental income pushes her into the higher rate tax band, then there is £5760 tax to pay on it, with a relief of only 20 % of the interest only part of the mortgage taken off.

Can’t remember what OP said the interest payment would be at 4.5 %, but it may be 3x what she is currently paying (is this £389, so 3x£389 per month = £1167 per month in mortgage interest??). So total mortgage interest payment for the year would be approximately £14k. So a mortgage tax relief of 20% of £14k (£2800) would be taken off the tax bill.

So. With an interest only mortgage of 4.5% (of whatever the current mortgage size is) the finances are:

Rental Income: £16800

minus costs:
Maintenance / certs etc = £1000
Managing agent (?) = £1400
Tax payable on rental income = £5470 - £2800 =£2,670.00
Mortgage interest payment (at 4.5%, assume payment is 3x current mortgage interest payment) = £14000

So total costs for the year = £19,070 (which works out at £1589 per month costs)

So monthly loss = £189.

So it will be costing OP £189 each month to let the flat, and there is still all of the hassle involved in being a landlord.

If OP has £260,000 equity in the flat - if she sells and puts that in even just high interest savings accounts, at 4% interest, she would be earning £10,400 a year before tax. Obs long term S & S investments, and utilising ISA allowances, could improve the earnings.

Compared to an annual loss of £2268 pa, after tax, if she keeps it let at £1.4k per month, with an interest only mortgage, at approx 4.5 %.

One of the only ways that being a landlord is at all sustainable at the moment, is if it has a good yield (ie value of no more than £325k, to achieve a rental income of around £1.7k per month), and you own it outright (so no mortgage payments), and you use Openrent to get tenants (£100 one-off fee rather than a % of rent for tenant find), and the landlord manages the property, rather than an agent managing it. And the landlord is a lower rate tax payer, and all rental income would still fall within lower rate tax band.

Sorry that is too much information to digest on a forum thread (for me anyway) We don"t know how much the OP bought the flat for so we don"t know at what point they make a loss, interest payments also need to be included in the loss, and I was saying that they need to use all their income sources to pay off the BTL debt, not just the rental income portion.

Yes, I’m making assumptions - essentially as her mortgage interest rate will be trebling (from 1.75% to 4-5%), then I am assuming her mortgage interest payment will treble also. I am assuming she keeps the same mortgage amount, and doesn’t increase the rent. And that she uses an agent to let the flat, and manage it. And is a higher rate tax payer (once rental income is included).

The one line summary of my post above, is that because of the increased mortgage interest payment (trebling due to rate rise), in addition to changes over recent years to how mortgage interest tax reliefs are calculated, she will make a loss of £189 a month, if she continues to rent the flat out.

So - OP may as well give the flat away for free, as she will be £189 per month better off if she does, compared to keeping it and renting it out….!!!!

Edited to add: in my view, OP shouldn’t try to pay off the debt, she should sell for as much as she can, as soon as possible, (and invest the money somewhere else) for the property will never be a good investment as a rental property..

”They say the bird is on the wing - that’s absurd. Surely the wing is on the bird?”

I re-read your first post and get it, good calculation information, pity people can"t seriously think things through and make cost assumptions before becoming landlords though, too much to ask during a crazy cheap debt boom probably? My thinking is keep the flat, pay the debt, keep the tenant and at some point in the future have an income source, or is this just not workable?

Ok, just saw your edit, the OP is probably a couple of years too late to have keen interest on a London flat, it is probably just going to be a grind trying to sell it now?

I sold my flat with a tenant 3 or 4 years ago. I trawled round the local estate agents. And one of them said he knew a buyer who would likely be interested.

3 or 4 years ago was a different world.

Unfortunately, if she were to have a sudden windfall of whatever the mortgage amount is (£100k? £200k?), then she could pay it straight off, and would then own outright a property worth £500k, but could only get a rental income of £1700pcm (approx £18k per year, after costs but before tax).

Compare that to if OP has £500k in cash, if she were to put that in even only high interest accounts at 4%, that would give her annual savings interest of £20k per year, before tax (compared to the £18k before tax she could earn as a landlord).

Obviously, if there is no sudden windfall, then OP will have to spend the next 10-15 years (?? assumption), making an ongoing loss of £189 per month on the rental, but also paying down the capital amount of the mortgage from other income. So it will put OP significantly under financial pressure for 10-15 years, for absolutely no benefit at the end of it (when she owns it outright, but it doesn’t return even as much as it would if it was in a savings account instead).

And - there is a lot of hassle and effort involved in being a landlord (I am a landlord, and a couple of years ago had to spend a couple of days of our summer holiday in Wales trying to deal remotely with a washing machine that broke down at the rental property back home… And it typically takes me approx 3-4 weeks of fairly full time work each time a tenancy finishes, sorting out all the admin, cleaning / maintaining and prepping the flat to advertise, and doing all the letting).

The return from my ‘investment’ works out at approx 5.3 %, before tax (because I fall into all of the categories that I listed in a previous post, for how to make it financially sustainable).

And considering I could be earning 4% (before tax) in a savings account, for the same amount of money I have invested in the flat - without all the hassle and effort involved in being a landlord - I imagine most people wouldnt bother.

I’ve seen online (MN threads) that it is possible to achieve 8-13% return if you are a clever long-term investor in S&S. So in comparison with this, private landlords (including myself) are idiots!!

But I keep on doing it, because I like being a landlord, I enjoy ‘providing a service’, and I feel reassured that my investment is tangible (bricks and mortar, I am somewhat old-fashioned). However, all of the financial penalties that landlords are now facing does get me down - a lot. I really feel that society (govt / councils etc) does not value good private sector landlords, and seems to be doing everything possible to discourage people becoming (or staying) landlords.

@KeepPumping Re: whether selling would be a grind, I’m not sure. The London property market is actually a huge number of micro-markets, that all operate slightly differently. So it very much depends on what the flat is like, and where it is, and what else is on the market at the time.

If it was me, I would try to sell the flat empty, as soon as possible. I think if it is empty, cleaned up / decor touched up / refreshed, with key rooms dressed and furnished to make it look extremely appealing, that will help with the speed that it sells… in terms of what value it would go for, that depends. I think there is a careful balance (with selling an empty property, with a mortgage on it, and other costs associated in keeping it empty), that should be calculated, to establish what exactly it will cost to keep it on the market for each additional month. As it may be that accepting an earlier, lower offer, works out much better in financial terms for the OP. So OP would need to work out where that balance is, and price it accordingly.

Maybe going to auction could be a fallback option, if it doesn’t sell within the target amount of time..

On reflection, maybe I would give the tenant notice for an inspection, see what the flat is like, then make a decision whether to start advertising it to sell it over Easter, giving the tenant notice so it will be vacant possession. Then if still on the market when tenant leaves, then spend a bit of time refreshing it & dressing a couple of rooms, and getting new photos. Could always try it with a new agent at that time as well.