This final article in the series of Purchasing Strategies for real estate investing deals with the concept of exit strategy. The term exit strategy is, like many in the business world, able to be defined in many different ways, in many different forums…even specifically as it relates to real estate investing. Basically, it is determining your goals for the investment and then planning the course for how you’ll eventually leave the investment, with a maximized profit.
The influential exit strategy factors may be:
- Short and long-term goals
- Experience level
- Time to close
- Purchase price
- Terms
- Property value
- Condition of the property
- Market conditions
- Supply and demand
- Financing options
- Profit potential
- Location of the property
When going into real estate investing, optimism is high. If you’ve consulted the experts, fully analyzed your finances, and are making a sound financial decision some may not be thinking of the end game. However, this is not wise. Investing in real estate is like the proverbial box of chocolates. You never know what you’re gonna get. A fixer in a primo neighborhood can end up being too big a can of worms, other investments could turn and you need to liquidate, or there’s a shift in the neighborhood that adversely affects your investment. You just never know.
Keeping things positive, if the investment was successful, having an exit strategy helps you know, ahead of time, how and when you’re going to walk away. A comprehensive list of strategies you may wish to consider and implement into your real estate investing goals, are:
- Wholesaling: Simply put, a wholesale deal will witness the investor act as the middleman between a seller and an end buyer. Essentially, the investor will find and quickly sell a property for a respectable profit margin. There are two methods in which an investor can wholesale: They can either sell or “assign” their purchase contract to an end buyer, or they actually close on the property and immediately resell the property to another investor in the form of a “double close.”
- Rehabbing: Rehabbing allows for the largest profit margins, as it allows an investor to sell the subject property at full market value. A rehab involves purchasing a house, renovating it and selling it for more than the original investment costs (purchase price and repair costs).
- Buy & Hold: This is a similar concept to that of rehabbing. However, instead of selling the renovated property, an investor chooses to rent it out to receive monthly cash flow. This is a popular real estate exit strategy for those looking to build up equity in an asset.
- Seller Finance: As its name suggests, the seller finance strategy involves a creative technique that permits the owner to sell the property to a buyer. Essentially, the owner finances the deal and acts as a bank. However, monthly payments are awarded to the owner. The seller maintains the mortgage loan to cover the sales price.
- Lease Option: A lease option, otherwise known as rent-to-own, allows the owner to rent the property to a tenant, but with the option to purchase it at a later date. Should the option be picked up, monthly payments are put towards the purchase of the home.
- Pre-Habbing: Pre-habbing is a hybrid combination of both rehabbing and wholesaling. During a pre-hab, minimal work is done to bring the property up to selling quality. They are often sold to rehabbers who will continue to fix it up.
Factoring in your real estate exit strategy, early on rather than when planning to exit the investment is the best and most prudent strategy. It will pay off as you go to sell your investment by not only dictating the speed of the transaction, but the steps you need to take to accomplish your investment endgame and achieve maximum profits. After all, that what it’s all about and Carod Properties is here to help!
