It is no secret that the majority of people who purchase an investment property do it while fantasizing about how much they’ll be offered for that same property five years later. The whole idea of property investments is to make money through appreciation or rent. Real estate is a low-risk investment market that rewards big investors with an abundance of financial prosperity for years to come. To be successful and reach the end game, you need to know when to bow out as someone who made profit. That is why it is advisable that you consider an exit strategy after you purchase your investment property.
Experts argue that to reach the point of an exit strategy, you should have set financial goals to be gained from the investment property you own. The goals are a reminder that this is how much money I should’ve made after five or ten years of having that property. The idea is to have the finishing line and work your way backwards from there to achieve it.
Why do people need exit strategies? Well to answer that we need to make two categories. There are people who buy an underperforming property and make it better only to resell it after a shorter period of time; and those who buy an investment property to use it as a second income from rent and to hold on to it as long as possible.
There are a number of causes that force property holders to be pushed into executing their exit strategy plans.
- Owners who have had bad experiences with tenants and problems in managing their property are usually the first ones eager to go through with an exit strategy. They are simply not able to cope with the demands of their venture or don’t see it as worth their effort to keep doing it.
- Personal emergencies can affect anyone, even property owners. If a property owner is stuck by tragedy where he/she are in dire need for cash then having an exit strategy can help you sell your property faster.
- You figure out that real estate business is just not your thing. If you see a lack of passion and that your property is becoming a hindrance to your lifestyle or well being then having an exit strategy will be smart.
- Wanting to expand your horizons and going on to bigger investments is a possibility if you have made profit and enjoyed the previous experience. It is one of the most common reasons to having an exit strategy.
Related: How to Manage Multiple Investment Properties on Your Own
- You made some bad decisions and the investment is giving you nothing in return in terms of rental income or appreciation. Having an exit strategy to cut your losses is extremely common in this case.
These are just some of the reasons on why you need an exit strategy and there are plenty more depending on the individual and their situation. There is no denying that the right to do is having an exit strategy that won’t leave you regretting. But what are the most common exit strategies that people follow? What are the procedures of exiting this market?
Common Exit Strategies
- The number one pick exit strategy when it comes to an investment property owner is the buy and hold strategy. It is actually the simplest strategy in the market and the most popular because of its consistent success. The idea is to buy an investment property that is in your financial reach and then turn it into something better. Renovating costs are part of the process yes, but you would be surprised to know how many people made huge profits from buying torn out properties and turning them around with new décor and style. The best way to execute this is by buying the property, renovating it, renting it for a long-term period to increase appreciation of the property and then sell it when you the sale price match your expectations. Doing that guarantees that you’ve made money from rent and a sale that has been boosted by appreciation.
Related: Selling Your Investment Property: When is the Right Time?
- The second exit strategy is the flipping houses one. It could a bit traditional but it is still an effective exit strategy because it allows you to sell one property and invest in another. People who usually engage in this are experienced real estate owners because they usually know if a certain investment property is worth the funds or effort. Understanding of the market and its volatility is essential to make this exit strategy work; knowing when the time is right to sell and move on to the next one.
Having a basic understanding of how to get out of the investment property you have, how and when to sell it is a determining factor between making marginal or significant profit. An exit strategy is a target and a philosophy of how you want to conduct your real estate business ideas. Following through with your choice is a piece of cake because deciding a path is more complicated.