978’s Simon Das Gives His Top Tips On How to Sell a Property Portfolio
From wanting to retire to needing to liquidate some capital, there are numerous reasons why an investor may want to sell their property portfolio, either in-part or entirely, but the truth is few investors have considered their exit strategy.
If you are in this situation, it is important to be aware of all the available options and weigh-up what matters most for you: Is it getting the maximum amount of money for the portfolio that you can, or is it selling-up as fast as possible? Of course, achieving the right balance between both these options would be ideal.
But before continuing, a caveat: while an investor wanting to sell their portfolio has the option of selling it piecemeal through estate agents to the homeowner market, this isn’t a strategy we will be examining here. It might make sense in some circumstances to do this, but for most, it would likely be too complicated and expensive to consider. For this reason, we will focus on an effective time-served solution.
Indeed, the more mainstream approach is to sell your buy-to-lets as buy-to-lets, either in bulk, or through a series of individual sales to other property investors or landlords. This could be achieved directly or through a third-party specialist agency or auction house.
Certainly, you need to take stock of your personal situation and examine the available options carefully before forging ahead. Here are some crucial factors to consider in the first instance:
A complex element to selling a property portfolio is the issue of tenants and whether you decide to try and sell your properties with tenants in place.
Before looking at this, we first need to distinguish between a tenant and a sitting tenant, the latter being a tenant who, under the term of an assured shorthold tenancy agreement, enjoys significant legal protection against eviction.
You might think that having a tenant in situ, (under the term of an AST) bringing a ready-made guaranteed income would make a property more desirable to a fellow landlord. Sadly, your would-be buyers might not always see this as a positive buying factor. Firstly, your buyers do not know whether the tenant is good or bad and might prefer to vet tenants themselves, rather than to inherit them. Secondly, they might have different plans for the house and be looking to add value prior to selling with a heavy refurbishment. And thirdly, a tenant with legal protection can affect the property investor’s access to finance. Which isn’t to say that a house with sitting tenants is unsellable, but there is a markedly reduced market for these kinds of properties, and you might require more specialist assistance with the sale.
Once the term of an AST (normally 6 months) has lapsed then the tenancy will become a periodic tenancy; often referred to as a ‘rolling contract’. If you have tenants in this situation, it reduces the risk for any landlord, looking to buy the house, making it easier to sell than if the tenant was under the original AST. Your prospective buyer now knows that if the tenant is a problem, they can evict them at the end of the required notice period. Consequently, they will also have more options for raising finance.
Notably, the market size for tenanted properties is still not as large as the market for empty homes, but it is more straightforward to sell properties with tenants under rolling contracts than it is to sell properties with tenants protected by an AST. That said, there are a few, very good reasons to keep your tenants on, rather than seeking to sell your property portfolio, as empty.
The Advantages of Keeping Your Tenants On
Certainly, it can be easier to find a market for an empty property than one that is tenanted. But this doesn’t mean that in preparation for selling a portfolio, you should start evicting tenants. There are good reasons not to do this and to proceed with finding a buyer with your tenants in place.
The first reason is cash flow. By evicting tenants, you cut your income to zero and still must service your costs. Should your sale fall through, then however long you expected to be in that situation will be extended – and that’s quite a risk.
The second reason is more personal. For single, young professionals, it might not matter too much if they were asked to find somewhere else to live, but there are moral considerations and greater implications to evicting a family from one of your properties that has lived there for a decade or more. On a human level, you may prefer to give them the best chance they have, of staying in their home.
And finally, it requires time, work, and management to evict tenants. Indeed, there is a balance to be struck between the speed of a sale and the amount of work required to achieving it. While it might be more difficult to sell properties that are tenanted, there is an important question as to whether that additional effort is more than it would take to evict those tenants, particularly when you are thinking about multiple properties.
So, to sum-up, when you are preparing to sell a property portfolio, you need to take stock of all your tenants (and your cash flow) and decide about whether you want to try and sell your properties tenanted, or as empty.
Selling your Property Portfolio Piecemeal, Through Estate Agents
If you have a small number of buy-to-let properties it remains viable to sell them through local estate agents, either tenanted or empty. Should you intend to sell them with your tenants still in residence, your buyer will need to be a landlord or property investor. Importantly, you should choose an estate agent suitably experienced in this market to get the best service and exposure.
While there are estate agents providing national coverage, most are small to medium-sized businesses who serve a particular local area. As such, when selling your properties situated in different areas, you may need to use a different estate agent to market each one separately. If you only have three or four properties then this can be easily managed, but if you have nine or ten properties spread across the country, then estate agents’ fees can become collectively very large, and the workload much more intensive. Providing you can manage the costs effectively and the additional workload involved, selling your portfolio piecemeal is the way of achieving the highest value for your properties. Evidently, there are fewer individuals in the marketplace seeking to buy a large property portfolio in one transaction than there are individuals seeking out a single property in a particular area. It stands to reason, therefore, that the piecemeal strategy is well worth your consideration. Indeed, when there are numerous variables at play, from tenants to the state of repair of your portfolio, to the locations of your properties and the costs of selling; striking the right balance between the speed of sale and a profitable exit strategy is key.
Alternatives to Estate Agents
Estate agents are not the only route to selling your buy-to-let properties and often their approach can be a little limiting. Other avenues worth exploring could include:
A Private Sale
It will always be possible to sell single properties from a portfolio or the entire collection to other landlords in your network. There is no end of online forums, local, in-person networking events, seminars, conferences, Facebook groups and Discord servers, where you can meet fellow investors.
If you are not sure where to start, 978 Finance run a Facebook group of over 1,000 investors, called Property Finance UK that you can join and start networking with other investors.
A Landlord-to-Landlord Service
Companies exist to serve landlord-to-landlord contact and to assist in facilitating transactions between parties. These companies can be extremely useful, but they can only help people already in their database. If a company does not have someone on their books who wants to buy your offer, then what they can offer, from that point on, can be limited.
A Quick Sale Company/Fast Buying Service
These companies come in many different forms, but typically they have the cash in reserve to buy a house or several houses outright. You should be prepared to take a hit on what you will make from a sale of a portfolio to a company like this, but what you lose in cash, you will make up for with the speed of the sale. Also, the hit might not be as large as you’d expect. You must tread carefully with this route and make sure that the buyers you are talking with are members of the National Association of Property Buyers.
Property Auctions are great places to sell individual buy-to-lets and yes, it is entirely possible to sell a property portfolio at auction as well. But you will, of course, need to understand your reserve price and there will need to be buyers in attendance who fit the profile that you have of an expected buyer.
A Hybrid Approach
There are companies who approach the matter of buying portfolios of buy-to-lets by combining the above. They will have the cash in reserve to buy a portfolio outright (for a certain discount) but will also auction the properties on your behalf to specialist investors for market value. The reason they can do this is that they are specialised and well connected in the investment industry.
Selling a Property Portfolio – Conclusions
You need to take stock of the situation.
Your tenants, monthly cashflow and the speed by which you need to liquidate your capital will dictate how you decide to move forward. Furthermore, you will need a clear idea about what you think your portfolio is worth, taking into consideration locations and the state of repair that your properties are in. Equally, you will have to be realistic about how much time and effort you are able/willing to put into the deal.
The number of houses you have, matters.
Selling two or three properties, through the normal estate-agent route doesn’t necessarily present too much of a challenge. However, selling seven or eight properties might prove to be a different matter. While you might receive more for the properties themselves, your fees will be high, the timescales long and the hassle, potentially not worth it. In these circumstances, a quick sale company, a private sale, an auction or some kind of hybrid approach could see your portfolio sold quickly and still for market value.
Only you know your own situation.
It is important to always remember that not all solutions are appropriate for your own situation. If you are struggling to decide on the best course of action, it is best to consult a property specialist and never to start selling your portfolio without first having serious discussions with your accountant and tax advisor. At 978 Group, we work with investors to buy and sell property portfolios and if you have any further questions, please do not hesitate to contact us today. Telephone: 01524 889 978 or email: firstname.lastname@example.org.