Selling house to tenant in two years time?

Selling doesn't make any distinction as to who they buyer is

You just sell

Simple

Hi Cathryn

Two years is a long time, so I'd be wary about planning that far ahead with a sale.

Make sure that the agent doesn't have a sales fee in their contract.

You should probably use an agent (a chartered surveyor) who can prove you with heads of terms to report to the parties' solicitors. You are legally obliged to deal with money laundering issues even as a private sale.

I have a lot of experience of selling let property and find that tenants frequently have expectations of heavy discounts. Make sure you get advice on value before getting too far down the line.

From my personal portfolio I have only ever once sold to a tenant. We were looking to sell and this local lady (verifiable) wanted it but could not afford it until her divorce was concluded. We agreed to let it to her. Two years later she bought it. It was very straightforward and 23 years she is still there. BUT from my experience of advising others such simplicity is rare.

Of course this has been done before !
Discounted sale to existing tenants
You could offer 10% off the valuation which the tenant could then use as a deposit and if they have savings on top then they might get a 85%/80%/75% mortgage
You save on Not paying an estate agents fee and get rent right upto the day you complete.
They don't have to move out or change address, new deposit, utilities change.
The Labour government have even talked about this very thing

Reply to the comment left by DAMIEN RAFFERTY at 18/07/2024 - 10:26
Hi Damien, How does giving a discount work in practice please.

As part of the conveyancing pack have a Deed of Surrender to be signed by the tenant either on Exchange of Contract or Completion.

No different to selling to any person.

You agree a price, the solicitors agree the % deposit- 5% these days as a portion of the 10% required, you exchange contracts then complete.

You retain the agent till completion as the tenant may not complete even if has exchanged contracts. But then they will owe you 10% of the purchase price plus costs.

I've sold 2 properties to sitting tenants and I have 2 more going through at the moment.
My process is as follows.
Three independent valuations on the property.
Agree the correct value for the property.
Then take off from the price the estate agents fee to sell and the equivalent of 3 months rent. This is based on the assumption that an empty property will take 3 to 6 months to sell.
I then make sure there is nothing outstanding with remedial works and everything is up to date.
At this point the tenant is now purchasing a house with no issues at somewhere between £8000 and £10000 below the agreed market value ( I appreciate my properties are maybe larger than average, most of mine are 4 or 5 beds).
I will still receive the same amount I would have done if I sold on the open market and all I have done is fulfilled my obligations as a landlord.
The tenant is incentivised, I have no break in income and there is no chain.
I also make sure the tenants use a local solicitor, so if necessary they can go into the office to sign things and I ask them to use my independent mortgage broker by preference so everything is kept quite tight.
The previous 2 sales have been really easy and smooth and I have no reason to believe the next 2 will be any different.
You could also look at the option of vendor gifted deposit if they can't raise a deposit. At that point use the actual house value as opposed to your discounted figure and you still won't be out of pocket.

I was using the capital gains calculator and it specifically asks if you sold the property for less than market value to help someone out.
Be warned if you did you pay capital gains on.the market value not the actual discounted price you sold for

Cathryn,

Martin seems to have a very good system in place that has been tried & tested.

What do you mean by, "unless other things change"?

Also, it sounds like a letting agent is managing the property for you. Check the contract that you signed with regards to a term on the tenant purchasing the property. if there is such a clause they will want their cut of the detail.

If there is no such cause in your agreement with the agent I would not tell them about the sale to the tenant and just give them notice when the sales date is agreed as required under their letting agreement. Just say you will no longer own the property after x date.

I would also add that as the deal is not to be completed for two years you could ask the tenant to pay any extra £100 a month for your set-up costs, ie solicitor & surveyor valuation fees etc as long as the detail goes through, ie they get a mortgage for the agreed amount within the agreed time frame. You will discount the sales price, If not you keep the extra £100 received over the two-year term period. This clause would just be in the terms of the sell agreement.

Best of luck

Kat

I had a tenant that wanted to buy one of my properties.

I wouldn’t offer a discount because, at the time, I wasn’t looking to reduce the number of properties that I let to tenants. Selling would have incurred expenses as would buying another. Even the 3% SDLT needed to be factored in to my sale price.

Today, I’d love to sell to the tenants. I have even toyed worth the idea of lending them the money to buy their homes (private mortgage).

My tenants approached me last year to see if I would be willing to sell to them. I was still in the fixed period of the mortgage and had only purchased the property (for them) a few years previously and had done a reasonable amount of work on it.

We had 2 valuations and agreed a price which was reduced by the EA costs and increased by the mortgage ERP. Irritatingly I had just paid for licensing and the property had not really increased in value but we came out at breakeven.

Very smooth sale.