A tenanted property has two values, and they’re rarely the same. One is what the house would fetch empty, sold to someone who wants to live in it. The other is what it’s worth to an investor as an income-producing asset, with the tenant staying put. Landlords who go to market with the first figure in mind and receive offers based on the second are often surprised, and sometimes offended. Neither figure is wrong. They’re measuring different things, and knowing how each is arrived at puts you in a far better position when you decide how and to whom to sell.
Why A Sitting Tenant Changes The Number
An empty property can be bought by anyone: first-time buyers, families, downsizers, investors. A tenanted one can only be bought by someone willing to be a landlord, because the tenancy survives the sale and vacant possession now takes the best part of a year to obtain. That shrinks the buyer pool to investors, and investors price property differently.
They’re not buying a home. They’re buying a rent, with a building attached, and they’ll assess it on what that rent returns relative to the price. If the return is good, the tenanted value can sit close to vacant value. If the rent is below market, or the tenant is in arrears, or the property needs work that can’t be done with someone living in it, the gap widens.
How Investors Think About Yield
The basic tool is gross yield: the annual rent divided by the purchase price, expressed as a percentage. A property let at £900 a month, which is £10,800 a year, bought for £180,000, yields 6%. Investors in most parts of the UK are looking for somewhere between 5% and 8% gross depending on the area, the property type and their own funding costs, and they’ll work backwards from the yield they need to the price they’ll pay.
Net yield goes further, deducting the costs of ownership: management fees, maintenance, insurance, void periods, compliance and, for many investors, mortgage interest. A property with high service charges or an ageing boiler has a lower net yield than its gross figure suggests, and a sharp investor will price for that.
What this means for you is that the rent currently being paid is the single biggest driver of a tenanted valuation. A property let below market rate is worth less to an investor than the same property let at the going rate, even though the bricks are identical.
What Pushes A Tenanted Valuation Up
- A rent at or near market level, with a recent review
- A reliable tenant with a clean payment history and a long tenancy behind them
- Complete compliance paperwork: deposit protection, gas and electrical certificates, EPC, right to rent, database registration
- A good EPC rating, since investors face minimum energy standards and price in the cost of meeting them
- Low ongoing costs, including modest service charges on leasehold flats
- A property type with steady rental demand in the area, such as two-bed flats near transport or family houses near schools
What Pulls It Down
- Rent well below market, which an investor can only correct through the annual statutory process
- Arrears or a history of late payment, which signal management effort and risk
- Missing or lapsed certificates, because the buyer inherits the liability
- An F or G EPC rating, which the buyer must improve before they can lawfully let
- Work needed that requires the tenant to move out, such as rewiring or a new kitchen
- A dispute with the tenant, which must be disclosed and which buyers will price heavily
Getting A Realistic Figure
Three sources are worth consulting before you decide on a price.
A local letting agent can tell you the current market rent for your property, which lets you work out whether your tenant is paying over or under. An estate agent who sells investment property, as opposed to one who mainly sells to owner-occupiers, can give you a view on what tenanted stock in your area is achieving and the yields investors are working to. And a RICS surveyor can produce a formal valuation on an investment basis if you want something documented, which is useful if the sale is part of a company disposal or a divorce settlement.
Whichever you use, ask for the tenanted figure and the vacant figure side by side, because the gap between them is the real cost of selling with the tenant in place, and it’s often smaller than landlords expect once a year of lost rent and holding costs is set against it. We’ve looked at the question of selling with tenants in place or vacant in more detail elsewhere, including how the numbers compare over a typical timescale.
Selling A Tenanted Buy-to-Let Quickly
If the figures point towards a tenanted sale and you’d rather not wait for an investor to come through an agent, we buy occupied rentals directly. Landlords looking for specialist support for landlords selling occupied rentals get an offer from us within 24 hours, based on the tenancy, the rent, the condition and the location together. We cover the survey, the legal fees and the EPC, our offers sit between 70% and 85% of market value, and we complete on a date that works for you. The tenant stays in their home with their agreement unchanged, and the rent transfers to us from completion.