No doubt the majority of folks that get into real estate investing get into it because they want to build wealth. From gaining equity long-term, fixing and flipping for a fast profit, or betting on appreciation, the goal is the get a good return on your investment.
Now some property investors start purchasing real estate with the intent to hold onto them for many years. They’re not looking to sell that property anytime soon, or maybe ever. They’re focused on building equity, hoping the home appreciates well, and enjoying many years of consistent cash flow.
Others are counting on fixing up the property and flipping it for a sizable profit within a short amount of time. Still, others might purchase property ‘Subject To’ the existing loan with the intent to sell via a lease option.
The point is that various exit strategies fit the different wants and needs of the investor. You’ll want to clearly define your exit strategy before you do anything and maybe even determine multiple strategies in case your circumstances change.
Three Factors That Affect Exit Strategy
Determining your exit strategy will depend on three factors:
- Personal finances
- Market conditions
- Deal structure
Your finances matter because if you’re short on cash and need a large sum quickly, you might want to purchase and flip a home or purchase ‘Subject To’ so you can turn around and sell with a short lease option. If consistent cash flow is what you’re after, then you may want to purchase and hold onto the property for many years.
Regarding market conditions, if homes on the market are highly appreciating right now, you might want to keep your properties longer. If homes are depreciating rapidly, you may want to sell outright.
Regarding deal structure, how you purchased the property will be a factor as to how you’ll sell the property. Did you use all cash? Lender financing? Wrap or ‘Subject To’ deal? You’ll also want to pay attention to the fair market value of the home. If you buy it at a super low price, say 75% of FMV, you could end up selling with any method. But if you buy close to FMV, you’re best to go with a wrap or lease option because your profit will be higher with these strategies.
Now, exit strategies can determine the gist of things like how, when, and where. Also, each one has advantages and disadvantages, so be sure to weigh the pros and the cons. As with any business deal, knowing your exit strategies beforehand is essential, so keep learning about the various types of exit strategies. Then, you’ll be ready to execute your plan when the time comes.
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