Timing is key to getting landlords out of the sector – David Alexander

David Alexander is the managing director of DJ Alexander.

Despite a hefty capital gains tax, you can still count on a substantial surplus accumulated over three decades to spend on exotic overseas vacations, give young adult children financial support, and perhaps also open a kids’ club. The ISA on behalf of this first grandson is the only traditional savings vehicle capable of delivering real returns in the current low interest rate environment.

But having decided to sell, the next big question is who are you selling to? In other words, a fellow investor or an owner-tenant? This is a particular dilemma, but not an unpleasant one, faced by landlords who own property in locations that are popular with both tenants and buyers, such as Brantsfield in Edinburgh and Hyndland in Glasgow.

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Let’s look at the first option. One advantage of this is that the sale can take place “under the radar”, so to speak, which saves marketing costs, although opening up to a wider investor market will obviously generate more interest and therefore the prospect of a better price. .

However, these “naive” early 2000s buyers (such as the recently retired Ipswich postman depositing a tax-free portion of his lump sum pension into a former council flat in Airdrie, never setting foot on Scottish soil) have largely disappeared since then. “advisors” whose advice proved dubious. Today’s investment buyer, especially if it’s a company, is likely to beat any purchase down to the last 5p, and this will be reflected in a price that the seller thinks will be lower than what he or she could get on the open market.

However, this type of sale has its advantages. It is almost certain that the buyer will be happy – in fact, want – to buy with the tenant on the spot, which means that the seller continues to receive rental income until midnight before the official day of the sale. This also allows you to avoid the cost of preparing the property for viewing by potential residents, i.е. for a facelift or renovation to cover up all the scuffs on the walls and stains on the carpets that are the by-products of years of wear and tear on the occupants.

On the other hand, there would be an understandable temptation to widely advertise properties at an inflated (or “offered”) price just below the estimated market value, on the grounds that – if properly located – it is likely to cause great irritation. a competitive bidding environment that would result in a substantial premium for the supplier.

But there are also disadvantages. A sale or sale is one of the few remaining reasons why a landlord in Scotland can easily and without rancor regain possession of a property. (Let’s hope the influence of the new Green Party in Holyrood’s government doesn’t result in tenants being given veto power over when a landlord can sell, as that would wipe out the private rental fund in one fell swoop.) However, repossession inevitably means the end of rental income, and this will continue until the property is sold, plus there are costs (listed above) to make it “presentable” to buyer-owner-tenants.

This does not necessarily mean that the cost of capital will stop rising, and at the time of writing, the continued rise in the value of a rented apartment is likely to equal more than a ridiculous level of interest in a High Street bank or building society savings account. However, with the recent rise in interest rates and likely further increases, this advantage is likely to narrow and even reverse, albeit temporarily, especially if home prices stall or even fall.

With so many elusive moments, even a sought-after apartment in six months could be worth less than it is today. This is the ownership model: sometimes you have to take one step back and then take two steps forward. Thus, even though the apartment would be worth less in six months, it could recover its value—and even more—in another six months.

Thus, timing may be the most important strategy for any private landlord seeking a profitable and hassle-free exit from the sector.

David Alexander is the managing director of DJ Alexander.

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