Landlords and property investors will commonly consider a property listed for sale with existing tenants in an upcoming auction – but there are several aspects of this type of sale that both sellers and buyers may need to assess.
Auctions are by far the most accessible route for selling a tenanted property, with an engaged audience of buyers. Bidders may be interested in acquiring a residence without any need to market the home to prospective new tenants and with a stable, ongoing revenue stream already in place.
In this article, we’ll work through all the important factors, from the type of tenancy to the availability of financing on a rental property with tenants in situ.
Looking to sell a tenanted property via action? Tell us some of the details of your property here and we’ll give you a FREE appraisal and discuss your tenanted property in more detail.Â
Can I Sell a Property With Existing Tenants at Auction?
You can; selling a rental property with tenants is a frequent occurrence, where landlords can buy or sell with transactional transparency. Downloadable legal packs and property details ensure prospective buyers can conduct due diligence and research before deciding whether to place a bid.
From a seller’s perspective, it is possible to sell one individual tenanted property, or even a complete portfolio as one lot, or as multiple separate lots within the same auction – all can be listed concurrently during one auction to save time and costs.
While sellers often assume it will be difficult to sell a tenanted property, this is often not the case. Newer landlords or property owners looking to expand their portfolios quickly in a certain region may be prepared to pay more for a residence with a predetermined income rather than bidding on vacant properties in need of significant investment in redecoration and marketing.
Sellers also choose to sell tenanted homes via auction since there is no loss of income and the sale transaction completes very quickly – a common downfall of listing a rental property through alternative sales channels.
How Does the Tenancy Type Affect the Saleable Value of a Rental Property at Auction?
The nature and terms of the tenancy will have a tangible impact on the value of the property – as will the location, size and condition of the building. Here is a recap of the various tenancy types you may have in place:
- Assured shorthold tenancies normally have a contracted period of between six months and one year. Buyers can opt to extend the agreement at that point or change tenants, providing the minimum statutory notice period. They then have the option of renovating or modernising the property if they wish before advertising the refurbished home.
- Assured tenancy agreements have different tenant protections and apply to some rental contracts initiated up until 1997. In this scenario, the property can be sold as tenant, and the tenant has the right to stay. However, a buyer may have recourse to increase the rent charged.
- Regulated, statutory and protected tenancies apply to some properties. This type of home is more specialist to sell, as the tenant has the right to live in the property for life and in some cases pass it to a spouse or child without any change in the rent. In some situations, that rent remains static for between 40 and 60 years, having a significant impact on the return.
Selling a tenanted property with a shorthold tenancy is undoubtedly the more typical and straightforward option and will attract greater interest – but almost any property can be sold, with due consideration given to the reserve and guide price you set.
What Are the Benefits of Selling a Tenanted Property at Auction?
The primary advantage of an auction sale is that the pool of bidders most likely to be interested in the property will be professionals – typical bidders might include landlords, developers, and investors.
Many will have pre-existing portfolios or be looking to start one and be comfortable purchasing a property with tenants, provided they have all the necessary information about the terms of the tenancy within the legal pack.
Other benefits include:
- Faster completion times, with the certainty that the property is very likely to sell during the first auction it is entered into. Tenants that are aware of the potential change in ownership should experience minimal disruption. Read more about how long it takes to sell at auction here.
- Retaining the rental income until the date of the sale completion – the seller does not need to continue covering financing costs without being able to recoup those costs through rental revenues until the transfer of ownership.
- Risks related to vacant rental properties are minimised. Landlords often find that empty homes can attract higher costs, with the owner covering outgoings such as council tax or other expenses related to property security.
There are, however, caveats.
Financing options may be limited, particularly for properties with rent protection. While most auction bidders will have pre-arranged financing to cover the acquisition costs – this may be very difficult to arrange for a protected property.
Related reading:Â How to sell a house at auction
What Are the Legal Aspects of Listing a Property at Auction With Sitting Tenants?
Before any property is listed for auction, we work with each seller and their conveyancer to collate the legal and official documentation included within a downloadable legal pack, made available to all prospective bidders.
Certain aspects, such as surveys, will note that the property is occupied, and buyers will expect to have access to the tenancy agreement and other relevant paperwork before they can decide whether to make an offer.
Related reading:Â Do I need a solicitor to auction a property?
Tenancy agreements will typically be unchanged and simply transfer from the seller to the buyer. The best practice is to communicate with the tenants so they understand that the ownership of their rented home is changing – a lack of dialogue can cause issues if tenants become concerned that they are at risk of eviction.
It is also wise to ensure tenants are agreeable to viewings, where necessary, and to arrange a mutually convenient time to take photographs of the property from the interior and exterior. While all of this information is essential to secure a sale, landlords should focus on communication with their tenants to support a smooth, stress-free process.
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Looking to sell a tenanted property via action? Tell us some of the details of your property here and we’ll give you a FREE appraisal and discuss your tenanted property in more detail.Â
About the Author:
Sam Kinloch
Sam’s career in the dizzy world of property auctions began when he hung up his chainsaw and headed in from the forest. Joining the team in 2003 Sam now sits on the Board of Directors and has been instrumental in the adoption of online auction services. Out of the office you can find him flying around the velodrome or sipping coffee at a local café.