3 Essential Exit Strategies Every Real Estate Investor Needs
Before deciding to buy real estate as part of your investment portfolio you need to be clear on what your overall strategy is for your real estate portfolio.
This is will allow you to be clear on what type of property you will purchase:
Will it be buy and hold, flip, renovate etc.
You make money when you buy, not when you sell. Never forget that.
To rephrase that a little bit: You need to have an exit strategy in mind before you actually buy the property.
And if you do not have multiple exit strategies in mind before you purchase the property, you can get yourself into a bit of a pickle.
Time is money, and if you are holding onto an asset, you are cash-strapped because all of your capital is in that asset.
You might not hypothetically be losing money right then and there, but you are losing opportunity cost. You don’t want to be sitting on the sidelines doing nothing.
1. Selling Your Property to a Homeowner
The first strategy is to ensure the property that you are buying fits a homeowner criteria.
Make sure that you conduct due diligence on that particular area.
Make sure that there is high homeowner activity in that area.
Make sure that properties are selling at a quick pace.
Make sure that you renovate this particular property to the same standard as the comparable sales, and price it a little below to get that quick sale.
Use this when you’re doing your first deal, your 10th deal, or your 100th deal.
2. Selling Your Property to an Investor
The second exit strategy that you need to have in mind is selling it to an investor.
How do you find an area where you can sell to a homeowner and sell it to an investor at the same time?
There are areas that are 50 percent investor-owned, 50 percent owner-occupied.
There are areas that support an investor demand and a homeowner demand. They are everywhere.
Now, when you are selling a property to an investor, the numbers need to make sense. Investors base their decision on the numbers in the deal, not emotions like a homeowner does.
Make sure you are delivering that property at a good cap rate. It should most likely be tenanted, and it has to have good property management in place.
An investor needs to know what it takes to manage the investment property.
So when you’re selling or you’re looking at exit strategy, have reputable, legitimate property management lined up.
Then you can possibly sell that property to an investor if the homeowner aspect of it does not work out.
3. Refinancing
If you can’t sell to a homeowner, and you can’t sell to an investor. You should ask yourself what you’re doing wrong, then you should refinance.
Is your financing in check, can you get a loan, and can you refinance out of that property?
When you refinance, you need to make sure that your monthly rent is covering all of your expenses. Underestimate your income and overestimate your expenses when you’re doing deal projections.
If those make sense, then you should be able to refinance that particular purchase. But you have to make sure that you have all of these things in order before you actually go into a deal.
