Selling a house with tenants: what are the options?

Do you need a buy-to-let property to be tenant-free in order to sell?

We all know there are certain things we need to get in place when we put a house on the market and if you're one of the many landlords looking to sell your buy-to-let property you will also have to make a decision about any tenants in situ. Selling an empty house is notoriously easier but could landlords be missing out on thousands of pounds in rental income each year – over £500m across the whole industry. So what are the options?

Selling with tenants in situ

New research by online buy-to-let marketplace Vesta has found that by selling your property tenant-free, you could be missing out on thousands of pounds of rental income while you house stands empty during the selling process. Individual landlords lose on average between £2,757 and £5,514 in rental income when they come to sell a single property (the equivalent of 3-6 months’ rent) – a loss that is calculated at between £551m and £1.1bn across the whole buy-to-let industry every year.

Sure, if you want to sell your property on to another buy-to-let buyer, it may make sense to keep tenants in place - if anything it may make the purchase more appealing, knowing that the new owner won't have to search around for tenants. If your property is one with a high rental yield, or if you own a student let and there's interest from other landlords in taking on your property, then it is certainly worth considering.

For those who are selling on to other landlords, vacating a property beforehand can - in some circumstances - cause untold distress to tenants and it's worth considering whether it's absolutely necessary.

A report into the Private Rental Sector (PRS) by Julie Rugg and David Rhodes, published this month, shows that 10% of people struggle to move into another home straight away at the end of a tenancy – with 3% considering themselves homeless and 7% having to rely on friends and family. Add to this moral question the lost rental income and it seems more favourable for everyone to complete the deal with tenants in situ.

Why do landlords sell tenant-free?

With figures from the National Landlords Association (NLA) suggesting that the market will be flooded with 380,000 properties that landlords want to sell over the next year. The simple answer to this question is that in a buyer's market you need your property to appeal to as many people as possible.

Richard Lambert, CEO of the National Landlords Association, said: “Selling a house with a tenant in situ is always an option for a landlord, especially if their target market is other landlords. However, landlords are often trying to sell their properties quickly. To do this, they need to open it up to all potential buyers, which may not be as easy when tenants are in place.”

However, if your property is one that would appeal to first-time-buyers or others looking for a home rather than an investment, then having tenants in place could be off-putting - indeed estate agents tend to value a property with tenants in place lower than one offered with vacant possession, mainly because they know by selling a property on with tenants it will restrict the pool of potential buyers.

This issue is compounded by recent regulatory changes such as the government's announcement of new minimum three-year tenancies, which offers more security to renters but may make a buyer think twice about being stuck with someone they haven't personally vetted.

What other options are there?

If you and your tenants have come to an agreement to end the tenancy before a sale there are a few things you can do to mitigate your lost rental income. Think about short term lets to friends and family. A situation where someone you trust is essentially a guardian of your property works out for all parties, particularly if they agree to pay for bills and council tax in lieu of rent. You could also consider turning it into an Airbnb, even while the property is on the market, fitting in viewings around short stays.

Both require the property to be clean and tidy so they work well together and you can use a management service such as Airsorted, who will do all the hard work for you in exchange 12% of the income.