How to streamline your portfolio

As landlords, we are all well aware how the rental sector is changing. The Renters’ Rights Act has now been with us for two months, just one more thing to adapt to, along with a higher tax burden and tighter legislation. 

It’s no surprise that many property investors are reassessing their positions, with one in three, almost a million across the UK, considering reducing their holdings.  

If you are one of them, it pays to consider your options carefully. For some, the time may be right for a full exit, and they will want to obtain maximum value. Others will want to streamline their portfolio to improve overall performance.  

In both cases, understanding how to sell strategically is vital. Here are my tips and we have a full LP Exchange guide available for download too.

Exit or reduction?

Every landlord’s circumstances are different, and the first decision is whether you are ready to exit the sector altogether. A complete divestment simplifies decision-making but requires careful planning to balance maximised sale price against costs and loss of income. 

The other approach is to retain high-performing assets while selling underperforming properties, to improve overall returns.The obvious caveat here is that those which are performing less well are also likely to be more difficult to sell.  

However, a property that no longer suits one landlord may still appeal to another investor with different priorities, such as location, appetite for refurbishment or yield expectations. Remember also that packaging properties together can create a more desirable overall purchase. 

What to keep, what to sell?

If you are planning to sell your entire portfolio, you can skip to the next section. For those looking to streamline, the first step - before making any sale decisions - should be to undertake a structured assessment of their portfolio. Here are the key areas to consider: 

• Location Proximity makes management and maintenance simpler. If you have a widely spread portfolio, narrowing it down to a particular area can simplify the decision-making process. 

• Property type and ownership
  Different asset classes carry different levels of complexity. For example, HMOs tend to have higher yields than single lets but are more management-intensive. Other key questions are whether the properties are freehold or leasehold, whether there are ongoing service charges, and whether they are owned by an individual or through a company or SPV (special purpose vehicle). In the latter case, selling the entire company can offer significant tax advantages, compared to selling the properties individually – but always take financial advice. 

• Finance
  Do the properties have outstanding mortgages? Are there any early repayment charges? These factors will influence the minimum viable sale price you can accept without taking a loss.  

• Performance and condition
  The best assets will have a strong rental income, reliable tenants, and low maintenance requirements. Check whether the rent compares well with the local going rate. If not, is there a reason? If there are underlying problems that prevent the property attracting a higher rent, these may need to be addressed. 

Sell individually or as a portfolio?

This is one of the most important decisions when selling multiple properties. As with many aspects of property sales, this ultimately comes down to balancing the maximum price achievable against practical considerations such as speed and cost. 

For reasonably attractive properties, selling individually will generally lead to higher sale prices. They will reach a wider audience (because the majority of buyers are only looking for a single property) and can be sold through individual agents with local knowledge and contacts. Investors will often tend to look for a discount when buying multiple properties rather than single units.  

On the downside, selling multiple properties individually is more time-consuming and leads to duplication of costs and fees. It also provides less certainty of a clean exit, with the chance of being left with single properties unsold. When selling this way, properties also need to stand on their own merits, which can make it hard to sell underperforming assets. 

Selling properties as a portfolio in a single deal saves time and costs. It also allows weaker assets to be offset by stronger ones, making the overall package more attractive to buyers. However, the tradeoff is that the market for full portfolios is smaller than that for single properties, and you need to be willing to accept a lower overall price than might be achievable individually. 

All sales decisions ultimately have to balance three factors: price, speed and certainty. In today’s market, certainty is becoming increasingly valuable, and at Landlord Property Exchange we see many sellers choose portfolio sales. 

Selling with tenants?

Whether selling individually or as a packaged portfolio, a key question is whether to sell property with vacant possession or with tenants. One of the major shifts we have seen, especially with the introduction of the Renters’ Rights Act, has been the rise of tenanted  property sales. 

This approach has benefits for both sellers and buyers – as well as for the tenants themselves, who don’t have to leave their home. Sellers keep earning rental income right up to the day of the sale, while buyers get income from day one at a known level. 

The Renters’ Rights Act adds an additional risk for sellers, too. If they use the new Ground 1A to gain possession in order to sell, they will not be able to re-let the property for a full year,  meaning potentially more than £16,000 in lost income if the property remains vacant and unsold. 

Choosing the right sale method

Once you have chosen your approach, executing the sale correctly is essential. Again, the trade-off between price, speed and certainty comes into play. 

For landlords, the two extremes of this trade-off are traditional estate agents and cash buying companies. Estate agents will generally deliver the highest possible sale price, but at the cost of slower timescales, higher costs and less predictability. Additionally, most estate agents are not set up to handle portfolio sales, so this approach will generally be used by landlords selling properties individually. 

Cash buying firms target landlords who are looking to exit rapidly, especially those whose properties may be more problematic and difficult to sell on the open market. While these firms offer high levels of speed and certainty, their offers tend to come at a significant discount below market value. 

Landlord Property Exchange, the NRLA’s official off-market sales platform, strikes a balance between value and speed. Our off-market platform focuses on tenanted properties – either individually or as portfolios. Our sales advisors can also help you assess your portfolio and plan your approach.