Selling a buy-to-let property
What does a landlord need to consider when selling a buy-to-let property?
The primary focus when selling a buy-to-let is achieving the maximum price and thereby your returns on your buy-to-let and also minimising your landlord tax.
Landlords need to make their best effort to present their buy-to-let as a decent and liveable property. If you are aiming at owner occupiers then the buy-to-let property should not look like a rental property but more of a potential home. That is clean, welcoming and immediately occupiable.
If you anticipate that you will sell your buy-to-let to another landlord then you should keep decoration and ornimentation to a minimum. Just as you as a landlord who was looking to rent your property you want to maximum the buy-to-let to the maximum number of potential tenants.
A Landlord Needs To Think – Housedoctor!
My advice is that a landlord needs to think Housedoctor, think clean, tidy and light. It’s all about maximising the sense of space.
In terms of decoration it’s usually best to keep things safe and neutral so that it appeals to the widest market, whether that be other landlords/investors looking for something that will easily rent out or for residential buyers wanting a home.
Statement wallpaper or outlandish patterned carpets don’t tend to be to everyone’s taste, so my advice is simple – light, bright and preferably white.
It’s worth sorting out any repairs that need doing. Fill and paint any rotten window frames, repaint walls, unblock gutters, tidy any outside spaces /gardens/ driveways, and replace tired old carpets with something neutral and cheap. These carpets only need to look good for the few months of the sales process.
All that said, this simple formula is very much a generalised view, and certain property markets might require slightly different approaches. Landlords need to identify and understand their target buyer, then act accordingly.
Different properties in different areas are going to require different treatments to achieve their maximum price. If a landlord is unsure it’s worth then consulting with local estate agents on what to do to maximise values before spending on any inappropriate refurbishment.
In terms of timing, spring is a good time to market a buy-to-let property. Buyers traditionally start surfacing in February, so if a landlord is under no specific time pressure to sell, it’s a good time to aim for dropping a BTL onto the sales market.
Should you sell your buy-to-let property with a tenant or with vacant possession?
Largely a landlord is always better selling their buy-to-let property with vacant possession (with no occupiers inc tenants). The reason being that the property will appeal to both owner occupiers and investors or landlords. If you do sell the property tenanted then you are effectively limiting it’s market to other landlords. Interestingly, over the last few years there have been an increasing numbers of developers who have targeted property investors and landlords by building properties with guaranteed yields (suggesting a tenant is in place). These projected rental yields tend to be generous to entice a landlord to buy. On this basis you could argue that where the property is likely to sell to a landlord then having the property let prior to sale at an attractive rent might be a positive for certain landlord purchasers. Having a the property tenanted on sale means that he landlord is going to avoid the prospect of a rental void. However, for a lot of landlords there are issues of inheriting another landlords tenancy ( has it been legally executed). Also, not all buy-to-let mortgage companies are happy to lend on the purchase of historic tenancies. So on balance for most landlord sellers vacant possession is best.
What are a landlords capital gains tax liabilities?
Selling a buy-to-let property brings a potential capital gains tax liability.
If a landlord has lived in the rental property for a period of time they may be entitled to the Private Residence Relief (PRR). PRR is a great way of mitigating some capital tax liability.
Download the Government’s guidelines on Private Residence Relief
A landlord who has never lived in their buy-to-let property may not be able to claim any PRR but they still have a number of allowances available to set against their capital gains tax liability.
The big one is obviously their personal capital gains allowance. This is an annual allowance availiable to everyone. In the tax year 2020/21 it stands at £12,300 and tends to rise each year, roughly in line with inflation.
A landlord will need to make sure that they claim all their expenses in relation to any capital costs relating to improvements to the property.
For example, if they have improved the property through an extension, loft conversion along with the original costs of acquisition and disposal such as legal and estate agent fees.
If a landlord sells will they have a CGT bill?
The size of any Capital Gains Tax bill will be dependent on how much the property has gone up and how much money has been spent on its development over the years. I have a property that was purchased for £83,000 back in 2005, that has probably cost me the best part of £20,000 to do up and yet is still only worth a little over £100,000. One positive about this poor performing property is that I would have little to no CGT liablility if I came to sell it. ( every cloud has a silver lining ).
This might be the case for many of us northern landlords, whereas, London landlords are fortunate enought to be cursed with sky high CGT liablilities (‘you poor things’ – sympathy spat from between my bitter, pursed northern lips)
Those landlords blessed with Capital Gains Tax liabilities will need to work out their base costs and claim fully for all their allowances and deductions to minimize their potential capital gain liability on disposal of the property.
Should a landlord ever sell their buy-to-let?
This is an interesting one.
The reality is that residential property price gains despite some ups and downs continues to outstrip inflation.
The house price data from Nationwide indicates that since 1975 UK residential property has out-gunned inflation by 2.9%. Not bad in any investors books, and this of course doesn’t include any rental profits during this period, nor factors in the gearing of borrowing to ratchet up these returns.
All in all, residential property has made a very good long-term hold and I personally see no reason it won’t continue to do well in comparison to other investements – although nobody can predict quite what’s around the corner and all investments are a gamble.
I’d advise landlords who do want to realize their investment to take time to think carefully before selling. Their might be a large capital gain sat there but remember Buy-To-Let property is an asset class that keeps giving; unlike a yacht or a Porsche or whatever you might want to splash your sale profits on.