A new target for landlords – the rise of the sitting tenant

A recent report by a large letting agency chain has revealed that the number of properties purchased by landlords with a sitting tenant has reached its highest level for a decade. This has got us wondering whether this is a new rental trend and if it is something we could see taking hold in West Lothian in the near future.

Of all rental properties bought by a landlord last year, 11% included a sitting tenant, four times as many as 2008. More and more, landlords are appreciating the value of keeping a reliable, long-term tenant in place when they buy a new property. After all, really good tenants aren’t always easy to come by and if you already have excellent ones in situ, it makes logical (and financial) sense to keep them there.

Letting Solutions May Blog 2

Tenants in homes sold as occupied have resided there for considerably longer than the average tenant. A quarter of these tenants signed contracts of two years or longer, in comparison to only 5% of tenants overall, the research found.

Although no two landlord purchases are the same, there are definitely indications that landlords are increasingly looking to buy from other landlords who already have tenants in place. In every region of the UK, the number of sales with a sitting tenant increased in the last 12 months. In London over a quarter of all purchases by landlords came with a sitting tenant, up from 12% in 2008.

Is this a long-term trend we will see in Scotland? Well, currently, the trend is at its highest in London and the South East, where yields are lowest (houses cost more to buy and run, even if you can offset this by charging higher rents). This means landlords are more inclined to purchase a property with a sitting tenant in order to obtain a rental income straightaway, thus improving their return. Instead of buying a property and then going through the sometimes long-winded and tricky process of finding a suitable tenant, a landlord who buys from another landlord rather than an owner-occupier already has that job done for them.

Closer towards Scotland, the North East of England witnessed the largest uplift between 2008 and 2014 of the proportion of landlords buying with a tenant already in place, suggesting that the trend has started to spread northwards from the capital and the South East.

For sellers with sitting tenants, they are put in a position where they are able to demonstrate to potential buyers the yields they are currently achieving. As we said before, landlords will get an immediate rental income without having to resort to finding tenants. This not only means they won’t have to factor in search costs, it also means they won’t suffer the dreaded void periods (any landlord’s worst nightmare).

So the advantages are pretty clear. But it’s not without its potential barriers and stumbling blocks. For example, you have no idea what sort of tenants you will be getting. They might be long-term, but long-term doesn’t always mean good. The landlord who you are buying from might be telling you they are fantastic tenants to speed up your purchase, while the tenants might want to come across as charming and trouble-free so they can stay put in the property they currently call home.

In most cases long-term tenants are long-term tenants for a reason – they treat the property well, pay rent on time and don’t place ridiculous or unfair demands on their landlord – but there is always a slight risk that this won’t be the case with existing tenants. In addition, you might find it more difficult to increase rents on sitting tenants, especially if they’ve been living there for a while. They will expect a bit of gratitude for their loyalty and may expect slightly cheaper rents as a result. This, of course, could affect your yields in the long-term.

At Letting Solutions we have grown to be the biggest and most experienced letting agency in the West Lothian area. We operate a quality of service that is second to none, with charges that are also very competitive. If you would like to find out more about what we do or want help and advice on letting property, please get in contact on: 0845 520 1420.

We also offer a free online property valuation tool to give you an accurate idea of how much your rental property could be worth in the current market.