I’ve had loads of issues with the property that I let — should I sell it at a loss?
I bought a flat near Newcastle a year and a half ago. The property is not in a prime area, but I was attracted by the high rental yield of 13 per cent. It is a freehold flat, not leasehold, so I’m not paying a service charge or ground rent. However, I struggled to secure lending for it and I’ve had lots of issues, such as people squatting while renovations were taking place and tenants moving out suddenly without informing the estate agent, which has happened twice now.
The property is occupied but the tenant is four months in arrears. My estate agent has informed me that the area is now subject to selective licensing [local authorities can introduce selective licensing of privately rented homes to tackle problems such as low housing demand or high crime rates], so I have to pay £675 for a licence.
To be honest, I feel like I’ve had enough. If I had known then what I know now, I probably wouldn’t have bought the property, as my strategy has always been to hold for the long term for capital growth. Should I sell the property at a loss if I have to and move on, or find a way of making it work?
Rachel, Whitley Bay
It’s not helpful for us to lecture you, but this is a great example of why we advise caution when buying properties solely for high rental yields: those yields often turn out to be illusory because of extra costs and challenges in collecting the rent you expected it to generate.
For some, buying this type of property is strategic and they have systems in place to control the risks. But your flat isn’t magically going to turn into the type of property that suits your original strategy, so you may be best off selling.
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The challenge you’ll face is that the market has changed since you bought the property. In a strong market you can find buyers who are willing to work through issues (including a difficulty in raising finance, which will always be the case for freehold flats). But in a buyer’s market, as we have now, you may struggle to find any takers. The tenants being in arrears is a further complication.
One option is to auction the property with a reserve price that will involve taking a loss, but a level of loss you can live with. At least then it’s done quickly and you can move on — whereas we imagine it could sit on the open market for a long time.
Alternatively you could stick it out a little longer: resolve the issues with the tenant, wait for the market to improve, then sell it when conditions are more in your favour and you may take less of a loss.
On the positive side, it doesn’t sound like this will be ruinous for you, and you’ll have learnt a lot from the experience. It’s always best to learn from others’ mistakes, but we’ve found that all our best lessons have come from our own pain. You’ve already done the hard part of actually getting started, so by using these lessons we’re sure you’ll make a much better investment next time.
What are my tenants’ rights after seven years?
I have let my flat to the same tenants for seven years. They are good tenants who always pay the rent on time and I have had no issues with them. However, I worry that they may gain increasing rights to stay in the flat the longer they are there. Is this right?
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I plan to sell the flat in the next two to three years and I worry that the tenants may refuse to leave at the point I wish to sell. Originally they were on a one-year tenancy agreement, but it is now on a rolling basis with a two-month notice period.
Sarah, Epsom
It’s a common misconception that tenants gain more rights after a certain length of occupancy. It isn’t true. As long as the tenancy started after 1997 and you’re renting to an individual (rather than a company) who is using it as their principal home and is paying rent of less than £100,000 a year, you’ll have created an assured shorthold tenancy (AST).
When the fixed term of an AST ends, it continues on a periodic basis until someone takes action to end it. If the rent is paid monthly, that period is one month — and as you’ve rightly said, you need to give two months’ notice to end it (your tenant needs to give only one month’s notice).
When you decide to sell, you’ll need to give notice in the appropriate way, assuming you’re not selling to an investor who would want to keep the tenants in place. After seven years without problems, you’d be unlucky if they suddenly became difficult about leaving.
However, it’s worth making sure in advance that you’ve done everything required to allow you to serve a valid notice to end the tenancy. This includes protecting their deposit in an approved scheme and providing the tenants with the prescribed information about it, as well as having a valid electrical installation condition report and gas safety certificate (and providing copies of each to the tenants). As every month is technically a new tenancy, you should also provide a copy of the government’s “How to rent” guidance each time it’s updated.
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If you’re unsure about any of this, it’s worth joining a landlords’ association and using its helpline for advice, because even small mistakes can invalidate a notice to end a tenancy. However, the main thing is to communicate openly with your tenants so the sale doesn’t come as a shock to them.
Submit your questions for the two Robs at propertyhub.net/sundaytimes
Rob Dix and Rob Bence are the presenters of The Property Podcast. They co-founded the property investor’s community Property Hub and the investment app Portfolio
