Over the last eleven years, helping tenants become homeowners has enabled me to sell a substantial part of my portfolio. The opportunity often begins with showing someone how buying the home they already live in could become a reality.
Many landlords would like to sell some or all of their properties. Their concern is finding buyers at a price they are happy to accept, particularly when the properties are occupied.
Over the last eleven years, I have found several ways to approach this. One of the most rewarding has been helping my existing tenants buy their homes.
There is a great deal to be said for a transaction where the landlord achieves a sale and the tenant becomes the owner of a home they already know and enjoy.
Start with what has changed for your tenant
Some of my tenants have lived in their properties for five, ten or fifteen years. During that time, their careers have progressed and their earnings have increased. Their financial position today can be very different from when they first moved in.
They may now be able to afford a mortgage. What they need is help to see how the purchase could work.
I have found that simply ringing someone and asking whether they would like to buy rarely takes the conversation far enough. A much more useful opening is along these lines:
“I am planning to sell the property at some point soon, and I wanted to give you the opportunity to explore buying it. You already know the house and the area. Would you like some help finding out what the figures could look like?”
That gives them something positive to consider, with the decision firmly in their hands.
Show them what ownership could mean
In some of the situations I have explored, the monthly mortgage payment has been around £100 or £200 more than the rent the tenant was paying me.
For someone who likes their home and expects to stay for years, that can be a very worthwhile conversation. They can compare the figures with their income, consider the cost and upheaval of moving elsewhere, and think about what owning this particular home would mean to them.
With a repayment mortgage, part of each payment reduces the amount they owe. Over time, they are working towards owning their home outright. They also stand to benefit from any future increase in its value.
I have owned property for around forty years, so I can share my own experience of taking a long-term view. My parents bought their first house in 1973 for £3,000. It is now worth around £300,000, a hundredfold increase in its nominal value.
That family experience helps explain why I encourage people to think beyond the next monthly payment. Someone expecting to remain in their home for another ten, fifteen, twenty or thirty years has a meaningful reason to explore ownership and what it could contribute to their family’s future.
A mortgage broker can turn that conversation into a clear picture of the repayments, the costs of ownership and the options available to that particular household.
Help them get from interest to an application
This is where going the extra mile makes a difference.
A tenant who has never bought a property may find the process unfamiliar. Having an illustration to look at, knowing which documents to gather and having a broker ready to talk things through can make the next step much easier.
I can help by providing the tenancy details and an accurate record of the rent they have paid. The tenant can provide their current income and expenditure information directly to the broker, who can assess suitable mortgages and guide them through the application.
They can speak to my broker or choose another appropriately authorised adviser. The objective is to help them obtain the information and professional guidance they need to make their own decision.
There are mortgage routes designed for people with small deposits, and eligible renters can explore up to 100% borrowing, thus removing the need for a deposit. A good rental payment history can therefore be useful evidence when exploring a purchase.
Make your contribution work towards the sale
One of my initial thoughts was to offer a 5% discount. The detail of how the lender treats that discount matters.
For example, take a property valued at £200,000 and reduce the price to £190,000. If the lender offers 95% of that reduced price, the mortgage is £180,500 and the tenant still needs £9,500 towards the purchase. To counter that. another approach I have used is agreeing a rebate of rent the tenant has already paid, to help fund their purchase. There is a payment history behind that proposal, supported by records showing the rent received. There are more lenders offering 95% LTV and many of them take a very different underwriting approach to a gifted deposit vs a rent rebate.
The practical next step is for the mortgage broker to put the complete arrangement to the lender, obtain agreement on how the rebate will be treated and have it properly recorded by the solicitors. This turns an idea into a proposal that everyone involved can work with.
I may also be prepared to contribute towards purchase costs, such as valuation fees or any Stamp Duty Land Tax due on an English property, with those contributions agreed as part of the same package.
The timing can be just as useful as the amount. Agreeing when funds will be available helps the tenant plan the payments needed to reach completion.
A sale that works for both sides
From my perspective, a contribution towards making a purchase happen can make commercial sense. I can weigh it against the price achievable through another sales route, estate agency charges, preparation costs, the time involved, and the heartache and hassle of evicting a good tenant or having to wait until they decide to move out before I sell.
For the tenant, the benefits are personal. They can stay in familiar surroundings, avoid the cost and hassle of a house move and become the owner of the home they have already made their own.
These approaches have helped me sell a substantial part of my portfolio over the last eleven years. The common thread has been taking an active interest in what would help tenants complete the purchase.
This is one of many ideas we can explore with Property118 clients. Your priorities may be retirement, a smaller portfolio, less borrowing or more time to enjoy the wealth you have built.
As I discussed in Which properties should I consider selling first?, the sales you choose should support what you want your wealth to do next.
If you would like to explore practical ways to sell down your portfolio and restructure your financial planning, book a Property118 consultation. We can discuss your properties, your objectives and the opportunities worth investigating further.
