Value of property with a Regulated Tenancy

[alphonso]

..does anyone have experience of purchasing properties with a sitting tenant on a Regulated Tenancy agreement? More specifically I'm interested in the perceived discount to market value compared with Vacant Possession?

Anecdotally I'm hearing that the value of a property with a 'Regulated' sitting tenant is 60-70% of the value, should the property be vacant.

[Oi_Oi_Savaloy]

what's the age of the tenant?

[dazwalsh]

I would expect to pay 30% less than market value for the property. If your lucky a chunky payout will be enough to shift the tenant, or wait until they peg it.

[Oi_Oi_Savaloy]

I've had some offered to me at 40% under market value (but I've not bothered to see if it's a realistic 'market' value or one they've pulled out of the air!).

Most of the tenants (on the properties I've been offered) are in their 70's but (and it's horrible to say this but it's true, for the most part) the older the better tbh. But the older they are, the more expensive the property obviously.

[blueg33]

Look at the rent income and calculate the gross value based on an 8% yield if the tenant has a good history of payingt the rent and on a 10 % yield if payments are unreliable.

[MrOrange]

blueg33 said:

Look at the rent income and calculate the gross value based on an 8% yield if the tenant has a good history of payingt the rent and on a 10 % yield if payments are unreliable.

Have I read that right? A £250k property needs to yield a minimum rent of £1700 a month?

[blueg33]

MrOrange said:

blueg33 said:

Look at the rent income and calculate the gross value based on an 8% yield if the tenant has a good history of payingt the rent and on a 10 % yield if payments are unreliable.

Have I read that right? A £250k property needs to yield a minimum rent of £1700 a month?

No. Sounds like you have the maths wrong

Use the rent to drive the value. The yield is all about the level of certainty that the rent will be paid. eg:

Tenant = local government 3% yield
Tenant = housing association 5.75% yield
Tenant = private individual that has a job and pays on time 8% yield
Tenant = flakey scrounger minimum 10% yield maybe much more.

Edited by blueg33 on Friday 26th July 12:54

[alphonso]

ok thanks.. sounds like 70% of fair market value is about right.. fyi the tenant is very much alive and kicking, he's about 60 yrs old. The property is in SW London, so yields of 3% are pretty standard, you'd never get 8% unless it's an HMO. This is of interest to me as I own the other half of the house and would like to buy the freehold through collective purchase. If successful with the purchase, I will try to incentivise the tenant to leave but he seems pretty comfortable there.

If anyone is interested in the maths, the yield is £10kpa, fair market value is about £450k based on the condition and about £525k when it's up to scratch and the structure of the building has been seen to.

I'll be offering £315k but I'm pretty sure it'll be rejected. Grainger PLC value their regulated tenancy properties at full value (on their books).. this must mean the company is over-cooked on their balance sheet, but that's their asset value (£525k) and the opening point for any negotiation... I guess it depends how motivated they are.. they did seem quite interested so maybe they have a disposition strategy.

If anyone is interested I can update with any progress..

Edited by alphonso on Friday 26th July 21:09

[kiethton]

Will say - grainger don’t value them at full VP value on their balance sheet...they do however guide to a VP value when all said and done although this is not factored into the companies EPRA NAV

[anonymous-user]

mountview Plc might regard itself as expert on this too

Maybe some nuggets in their latest report / website

https://www.mountviewplc.co.uk/

[blueg33]

alphonso said:

ok thanks.. sounds like 70% of fair market value is about right.. fyi the tenant is very much alive and kicking, he's about 60 yrs old. The property is in SW London, so yields of 3% are pretty standard, you'd never get 8% unless it's an HMO. This is of interest to me as I own the other half of the house and would like to buy the freehold through collective purchase. If successful with the purchase, I will try to incentivise the tenant to leave but he seems pretty comfortable there.

If anyone is interested in the maths, the yield is £10kpa, fair market value is about £450k based on the condition and about £525k when it's up to scratch and the structure of the building has been seen to.

I'll be offering £315k but I'm pretty sure it'll be rejected. Grainger PLC value their regulated tenancy properties at full value (on their books).. this must mean the company is over-cooked on their balance sheet, but that's their asset value (£525k) and the opening point for any negotiation... I guess it depends how motivated they are.. they did seem quite interested so maybe they have a disposition strategy.

If anyone is interested I can update with any progress..

Edited by alphonso on Friday 26th July 21:09

Yields of 3% are not the norm unless you have government backed income. I have done well over a 1000 apartments on regulated tenancies in the last couple of years.

I guess some private investors may be doing 3% but that just makes them idiots. The yields I quoted are pretty much where the market is at.

It’s all about covenant strength, followed by reversionary value.