Home Residential PropertyBuy-To-Let Sitting tenants cut market values by 15% presenting opportunity for buy-to-let investors

Sitting tenants cut market values by 15% presenting opportunity for buy-to-let investors

1st Jul 24 10:37 am

While rental properties with a tenant in situ may allow landlords to hit the ground running, the latest research by Lomond, one of the UK’s largest acquirers of estate and letting agency businesses, has revealed that they could prove hard to come by, accounting for just 2.8% of total market listings.

However, those who can locate a suitable investment opportunity could save as much as 25% on the market value of their investment.

Buy-to-let investment can be an expensive endeavour to get off the ground and there are a whole host of costs associated with preparing a rental property before the task of finding a tenant can even begin.

What are the benefits of investing with a sitting tenant?

A property with a sitting tenant is one way of investing in the rental market with minimal fuss. The primary benefit is, of course, the fact that with the tenant already paying rent, you can secure a guaranteed rental income right from the off.

Such an investment also provides peace of mind, given that the tenants in situ will have already been vetted by a letting agent. Not to mention the fact that the previous landlord will have had to take care of much of the nitty gritty associated with a rental property – such as any compliance certificates, gas safety and in the case of HMOs, licensing.

However, the research by Lomond suggests that the benefits of investing in a rental property with a sitting tenant may be hard to come by depending on where you’re looking to invest.

Properties with a sitting tenant account for just 2.8% of all homes listed for sale

The figures show that, in the current market, there are some 12,423 investment opportunities available with a tenant in situ across Britain. This equates to just 2.8% of all available homes on the market.

This figure falls to as low as 0.3% of total market listings in London and even in Yorkshire where the highest proportion of properties with a sitting tenant are found, such opportunities still only account for 6.3% of total market stock.

For those who can locate such an investment opportunity, the figures from Lomond show that it’s not just an immediate rental income they could benefit from.

Sitting tenants provide potential for a discounted market price

A sitting tenant can often devalue a property due to the fact that any potential buyer inherits the responsibility of the tenancy agreement with the existing tenant. This can deter the average buyer who intends to use the property as their own, as they may not be able to move in for some months until the tenancy comes to an end, or until the eviction process is complete.

For buy-to-let investors, however, the potential reduction in market value of a property with a sitting tenant only helps to increase the yield on their investment.

The figures from Lomond show that the average asking price for a property with a tenant in situ currently sits at £149,124 across Britain, some 15% less than wider comparable market values – although this discount climbs as high as 24.6% in Scotland.

Even in the East of England, where the reduction in value of a property with a sitting tenant is at its lowest, investors can still benefit from an average discount of 10.8% compared to wider market values.

Lomond CEO, Ed Phillips, said, “A sitting tenant can provide a fantastic opportunity for buy-to-let investors, particularly those entering the sector for the first time, as it provides them with a ready-made investment and allows them to hit the ground running with an immediate rental income.

That said, you still need to be careful to carry out the proper due diligence, particularly with regard to the tenant, to ensure that they are maintaining their rental payments and no other issues have been raised.

Opting for a tenanted property that has been managed by an agent can help in this respect, as they will not only have vetted the tenant to begin with, but are also likely to have a more robust tenant history and have managed the property to a professional standard.”

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