Developing your exit strategy for your Real Estate properties is essential for your profitable growth.
Today I would like to elaborate on different exit strategies when transacting Real Estate. Carefully planning ahead and making strategic decisions can be both personally and financially rewarding for investors. It’s important to start with the end goal in mind. You should already know your exit strategy before you buy, otherwise, you are setting yourself up for failure in Real Estate. An exit strategy is a plan specifying the way a real estate investor intends to get out of a real estate deal. It allows you to minimize your risk and maximize the value and profit of your deals. It also prevents the waste of enormous amounts of time due to improper planning. Try not to even enter negotiations with anyone unless you have a preliminary plan in mind of how you will be exiting from the deal and making money in the process. Otherwise, it will be almost impossible to negotiate a position of strength if you do not know what you are going to do with the property before you purchase it.
There are many key factors influencing your exit strategies to consider when choosing one for your real estate deals. Over time, you will be able to recognize certain commonalities and put deals into specific categories. The exit strategies will be based on many different factors, such as your short and long-term financial goals, market conditions, property values, the condition of the property, supply and demand, and your experience level. Also considered is the time it takes to close, purchase price, and the financing options you have available at the time.
Now there is no wrong or right strategy, it’s just what works best for you on that certain deal. Knowing all the different ways to exit from a deal can increase your profits significantly. And that’s why I am making this video, to introduce you to a few common exit strategies you may consider using in your future real estate endeavors.
Option 1: Seller Financing
Seller or Owner Financing is a creative technique in which an owner sells their property to an investor. The real estate investor borrows the money from the owner instead of a bank and makes the monthly payments to the owner instead. The seller acts as the lender and holds the mortgage loan to cover the sales price. Both buyer and seller agree to the terms and conditions and draw up the necessary paperwork to close the property. I’ve only had one real estate opportunity where the owner offered to sell us the property using owner financing. It was for the purchase of one-hundred-ten (110) acres of agricultural land in Maui for a nonprofit organization I founded, Enlightened Individuals. Unfortunately, it was something I wasn’t prepared to close on at the time, but I still have it in my radar.
Option 2: Lease Options
Lease Options is another exit strategy to consider which involves buying a property and leasing it to a tenant/buyer with an option to purchase from you at a later date. The tenant signs a normal lease agreement for a set period of time and also an option contract that gives them first right to purchase the property from you at a set date.
Option 3: Pre-habbing (Real Estate industry coined the term)
Another exit strategy is to pre-hab the property, which is a cross between a rehab and wholesale deal. The investor does a minimal amount of work to the property before selling it to a rehabber. This was a great option for our company, as this is what I did for a living before I started investing. My previous company, T&B Enterprise was a property preservation company. We did clean outs, gutting of properties, painting improvements, landscaping etc… These are all the key elements of a pre-hab.
Option 4: Rehabbing
There is also Rehabbing of properties. This is typically the best strategy if a home is in need of extensive repairs and there is a large profit margin. The investor buys a property, renovates and re-sells it for full market value to a qualified buyer who can pay cash or has a traditional mortgage. This is our ideal situation at this point in our real estate careers. Its aligned with our short-term goals.
Option 5: Buy & Hold
Now buying and holding properties is a long-term exit strategy. When you’re looking to bring in passive income to complement your day to day transactions, this is the strategy for you! It’s when you purchase a house, renovate it, and rent it for monthly cash flow. We currently have one buy and hold property located in Colorado Springs. We plan on keeping this property for years until the equity builds and mortgage is paid off.
Option 6: Wholesaling
The last strategy I’m going to speak of today is Wholesaling. As a wholesaler you find and quickly sell properties, acting as a middleman between the seller and end buyer. This is great for new investors because it requires no money to invest in the deal. If you would like to know more about this exit strategy, I’ve done a more elaborate video on the subject matter that you can find on our channel, named Wholesaling.
Those are some of the different exit strategies you can consider when making your real estate investment deals. Hopefully, you got a lot out of the video. This is Courtney Thomas of Noah’s Ark Investments, and we’re here to help you set sail to a better financial future.
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