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Selling a Buy to Let Property: How to Sell Buy to Let

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    Selling Your Buy-to-Let Property

    There are various reasons why you might consider selling a buy-to-let property. You might want to downsize your buy-to-let portfolio, sell your property to generate funds to buy another or get out of property investment entirely.

    Whatever the reason, selling a buy-to-let property is often more straightforward than selling a residential property. You are likely going to be dealing with more experienced buyers who are less emotionally invested, so the process may be smoother.

    That being said, the buy-to-let market can be tricky to navigate, so we’ve put together this blog post to help you understand how to sell a buy-to-let property. This blog will detail the sales process from the point of view of a seller, as well as discussing important factors such as selling while the property is tenanted.

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      Why Would You Consider Selling a Buy-To-Let Property?

      With rents rising and high demand being consistent throughout 2023, you may be confused as to why you might consider selling a buy-to-let property right now.

      As Homelet reports, rents have risen by 9.9% annually in April 2023, so buy-to-let landlords are making more rental income than ever, but various market factors are leading investors to consider getting out of the buy-to-let market:

      Rising House Prices

      The first of these factors is actually a positive, as many investors are choosing to sell their buy-to-let properties to take advantage of how house prices have risen in recent years.

      Capital growth is a big reason why people choose to invest in buy-to-let property, meaning the profit you make from selling a property after it has risen in price over time.

      House prices have risen to record highs in late 2022, and continue to show signs of growth in 2023. The most recent data from the Land Registry indicates that house prices rose annually by 5.5% from February 2023.

      Buy-to-let investors can sell their properties to make major profits through capital growth, making it one of the main reasons why people choose to sell. This is a key factor to why buy-to-let is a good investment in 2023.

      Rising Mortgage Interest Rates

      Another reason why investors are choosing to sell in 2023 is the issues stemming from rising mortgage interest rates.

      Many choose to purchase their investment properties using buy-to-let mortgages, where they make repayments on the accrued interest over the term of the mortgage and only pay back the amount borrowed at the end of the term.

      In March 2022, the average interest rate for a buy-to-let mortgage was 3.2%, whereas in February 2023 it was 5.91% according to Which.co.uk, a massive increase.

      This was mainly because of the September mini-budget unveiled by the government, which caused the pound to drop in value, leading many to believe that the cost of borrowing would rise sharper than expected. Many lenders pulled their mortgage deals while others chose to inflate their interest rates.

      Because of this, some investors are struggling to make their mortgage repayments, leaving them no alternative but to sell their buy-to-let property.

      No More Tax Relief

      Until September 2017, buy-to-let landlords were able to claim tax relief on their mortgage repayments, saving them a considerable amount of money.

      Basic rate taxpayers could claim up to 20% as tax relief, while additional rate taxpayers could claim up to 40-45%.

      With this no longer being available, many landlords chose to sell their investment properties as it hurt the financial viability of their properties.

      Other Common Reasons

      There are several other reasons why investors might want to sell their buy-to-let property, which we’ve listed here:

      • Disruptive tenants who cause too much stress. It can be easier to sell the property than to get them out of it.
      • Expensive vacancy periods where they are without rental income, leading them to lose money in the long run.
      • Increased legislation has meant more time needs to be spent on administration, while landlords cannot charge admin fees. For those who use buy-to-let to supplement their day job, the added time this takes means it isn’t feasible.

      As you can see, there are many reasons why you might consider selling a buy-to-let property, so lets get into how you might go about that.

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      How to Sell a Buy-to-Let Property

      As we mentioned earlier, selling a buy-to-let property can be more straightforward than selling a residential property as there is less emotion involved, and the buyers are more experienced.

      It will require more work than buying a buy-to-let property, as you will need to prepare your property for sale before meeting with any potential buyers.

      Also, if you bought your property through a property investment company, you can often resell it through them as well, taking the hassle out of your hands. This option is well-suited to any investor as the property investment company will handle the hard work of selling the property for you.

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        How to Sell a Buy-to-Let Property - Step by Step

        Selling a buy-to-let property can differ from investor to investor, but this step-by-step guide will help you understand how the process will generally go.

        The first step is to understand how much your investment property is worth in the current market. Research the property market in your area and look at how much similar properties close to you are selling for.

        This may be out of your hands if you have to sell your property straight away, but you need to decide if you want to sell your property while it is tenanted or to wait until the tenancy agreement ends. We go into more detail about these two options later in this blog.

        Selling a buy-to-let property has various tax implications which you need to make sure you’re aware of before you sell. Remember, this will be different to selling your main home. We break these down for you later in the blog.

        While it isn’t essential to hire an estate agent to help with the sales process, it is often recommended. They bring you added ease and security, as well as expert knowledge of the local property market.

        Alternatively, if you bought your property through a property investment firm, you can often sell it through them as well, serving the same process.

        When you are officially ready to begin the sales process, you’ll need to hire a solicitor to handle the legal side of things and to transfer ownership. Get a range of quotes if you can, although your chosen estate agent or property investment company may have a trusted solicitor for you to work with.

        Hopefully, your investment property will attract potential buyers, and you will need to be able to host them for viewings so they can see where their money will be going. Inform your tenants beforehand if you have any, and fix any minor repairs to make the place look its best.

        If your viewings go well, you’ll have to review any offers that are made on your property and decide if you want to accept one. Your solicitor will pass on any offers you receive. If you do not follow through on an offer you accept, buyers will look at you in a poor light.

        The final step of selling a buy-to-let property is to exchange contracts with the buyer to legally complete the sale, accept the payment, and hand over the keys to finally sell your buy-to-let property.

        This step-by-step guide is a simplified breakdown, but there are extra details you’ll need to be aware of. The most important of these is if someone is living in your property or not, as this will affect the sales process.

        There are two different scenarios when it comes to selling a buy-to-let property; selling when tenants are living in your property and selling when it is vacant.

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          Selling a Buy-to-Let Property while it is Tenanted

          You can sell a rental property while it is tenanted, but this can prove to be more complicated than you might think at first.

          One of the most important things you can do while selling a tenanted property is to keep the people living in it happy. This will make them more likely to be agreeable to the sales process, and in turn, this will lead to fewer problems for you.

          You can do this by communicating clearly and often with your tenants as soon as you decide to sell the property, to ensure they are kept in the loop.

          When selling the property, you will need to hand over the tenancy agreement to the buyer and the tenants may have to go through a new round of background checks and sign updated contracts.

          You’ll also need to provide the gas safety certificates and inventories, while transferring the protected tenancy deposits to the new landlord.

          No matter what, your tenants have basic rights you have to respect. You cannot simply evict them or change the terms of their tenancy because you want to sell, so check the tenancy agreement you both signed.

          In summary, it is much more work to sell a tenanted property than it is to sell a vacant one, but this might be the best option if you are looking to sell your property quickly.

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          Selling a Buy-to-Let Property while it is Vacant

          As you won’t have to worry about tenants, the process of selling a vacant buy-to-let property is much easier than selling a tenanted one.

          However, if you want to evict your tenants before selling, you’ll need to be very specific in how you do it. You cannot evict a tenant simply because you want to.

          If you want to vacate the property before the tenancy agreement ends, you’ll have to offer some kind of compensation, be it financial or otherwise. Your tenant will hold all the cards legally in this situation though.

          When the current tenancy agreement is coming to an end, if they are on a ‘rolling’ contract or if you have a specified break clause, you can use a Section 21 notice to serve a no-fault eviction. This gives two months for your tenants to vacate the property.

          It’s important to note that if you are selling a vacant property, you won’t be collecting any rental income during this period, so you’ll need to accommodate for the loss of revenue, especially if you have a buy-to-let mortgage.

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            Tax

            Tax on Selling a Buy-to-Let Property

            You should be aware of how you will be taxed when selling a buy-to-let property, as this has major implications for the kind of profit you will be making on the sale.

            The major tax you need to think about is capital gains tax, which is a tax on the profit you make from the sale of an asset that has risen in value.

            While the buyer will have to pay stamp duty and you’ll need to pay income tax on any rental income you have made, capital gains tax is the main form of taxation you need to consider during the sales process.

            It is only taxed on the profit you make, not the overall value. For example, if you bought your buy-to-let property for £200,000 and sold it for £220,000, you would only be taxed on the £20,000 profit, not the overall sale price.

            How much you are taxed will depend on the tax bracket you fall under. If you are a higher rate or additional rate taxpayer, you’ll pay 28% tax on any residential property you are selling.

            If you are a basic rate taxpayer, you’ll only pay 18% of the profit you make.

            Either rate of tax you will pay is a substantial amount of the profit you will earn from selling, so you’ll need to prepare for this when getting ready to sell.

            You may be able to get tax relief on your capital gains tax if you made a loss on the sale of the property, and you may be able to deduct capital expenses for any significant improvements you made to the property over the course of your ownership.

            This is not likely to be the case however, so no matter what, the main problem with selling a buy-to-let property is capital gains tax as it will eat into your profits significantly.

            Selling a Buy-to-Let Property with a Mortgage

            If you have borrowed a buy-to-let mortgage and are yet to fully repay it before you sell, there are several things you need to consider.

            The first thing you need to be aware of is the type of mortgage you borrowed. You’ll need to check if you borrowed a fixed-rate mortgage, as if this is the case you will be expected to make regular payments for a fixed term.

            If you sell and have to do an early repayment, there are likely to be extra charges which can be quite substantial.

            Be sure to understand the terms of your mortgage to see if there will be any consequences for selling before you have fully repaid it.

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              FAQs

              You can sell your buy-to-let property at any time in your ownership, but it is often best to wait for capital appreciation to see it rise in value over time. You will be making money from rental income during this period.

              If there are tenants in your property when you want to sell, you need to give a minimum of two months’ notice if you want to evict them, so long as you use a Section 21 notice. It is possible to sell a property while it is tenanted though, so it may be easier to sell with tenants in situ.

              You will be paying capital gains tax on the sale of any buy-to-let property that has risen in value. There are no tax-free sales of buy-to-let property, unfortunately.

              If you are an additional or higher rate taxpayer, you’ll pay 28% of the profit you make, whereas basic rate taxpayers will pay 18%.

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                Invest with RWInvest

                As one of the UK’s top property investment companies, RWInvest regularly works with clients who want to sell the buy-to-let properties they initially purchased with us.

                We work tirelessly to help you find a buyer and guide you through the process to help you make a substantial profit without added stress and hassle for you.

                With expert knowledge of some of the UK’s best buy-to-let areas like Liverpool and Manchester, we can help find you some of the best property investment opportunities in the nation.

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                Author

                Reece Pape

                Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.

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