Real estate investments tend to be some of the safest bets out there. Most properties will increase in value over time, which means you can cash in when you’re ready to sell. Until then, you make a passive income from the rent you rake in from domestic or commercial tenants.
Of course, not every investment will take this route. Sometimes, a rental property turns out to be more hassle or more money than it’s worth. If you’re finding yourself in this situation, you might feel as though it’s time to walk away. However, you rightfully want to make the most money you can from the sale. Consider the following four exit strategies to help you in that quest.
1. Flip It, Then Sell It
Turn on your TV and, chances are, you can find a show about professionals who buy less-than-desirable homes, spend a few weeks revamping them and sell them for a huge profit. You can do the same with your rental property if you have the funds to.
Not every property will make a good flip, though. Make sure your place stands in a good location, and that it has good bones before you dive into construction. After that, acquire the funds you’ll need to prepare the place to sell for a price that’ll cut your losses.
You don’t have to go top-of-the-line in every room, but you should pay special attention to the kitchen and bathrooms. These rooms tend to sway buyers one way or the other, and you’ll get your money back — a mid-range kitchen upgrade will give you an 82 percent return on investment, on average.
After that, you have your exit strategy — you can sell your flip and hopefully repay the costs of renovation and some of your other property-related expenses in the sale. You might just find you have a new real estate investment strategy if you’re talented at flipping houses.
2. Hold the Property Post-Flip
Once you’ve flipped your home, you can sell it, or you can hold it and reap the rental profits. Chances are, you can ask for more per month now that the place looks better. You’ll continue to reap the benefits of your investment property with the rental income each month.
This won’t be an option for everyone with a rental that has begun to cost too much, especially if you don’t have the funds or the credit to pay for your flip. However, if you do, you could try the flip-and-hold method if you want to maintain your investment portfolio.
3. Set up a Seller Financing Deal
Perhaps you have a tenant who wants to stay in your rental property even though you want to unload it. In this case, you could strike a seller financing deal, should the person have an interest in purchasing the property themselves. One of the big benefits of this exit strategy is the amount you’ll save on real estate commissions, staging, and listing your home. The deal will be done, and you just have to solidify the terms.
The entire transaction revolves around a promissory note, wherein you detail how your tenant will repay you for the house. You’ll agree on an interest rate and a monthly payment, as well as any required down payment. This setup provides you with another benefit — because they’ll be paying you rent plus interest each month, you’ll still make money from your rental property. Once the deal is done, a seller financing deal removes the typical landlord responsibilities from your shoulders. Now, the tenant is the technical owner, and they’re in charge of paying for incidentals.
Finally, should anything go wrong, you have the house as collateral. You get it back if they fail to pay. There’s only one caveat, and it’s that you should own your home outright before setting up such a deal. Otherwise, you have to inform your lender of your plan, and they have to approve it.
It may sound similar, but rent-to-own agreements differ greatly from seller financing. In the case of the latter, the tenant becomes the owner as soon as the deal is done, even though they continue to pay you monthly installments to solidify ownership. In a rent-to-own situation, the landlord remains in their position until the tenant opts to move forward with buying the place.
Typically, rent-to-own starts as a rental agreement, and it could continue that way forever. However, the lease will contain a promise that the renter can buy the place in the future, although they’re never obligated to do so. Having the option could help you unload your unwanted property, though.
Walk Away From a Real Estate Investment
With the above four exit strategies, a real estate investor can walk away from a rental property with pride. Not only will you release yourself of what has become a financial burden, but you can also do so in the smartest and most profitable way possible.
With such care in making your exit, you won’t be so burned that you feel you have to avoid the market altogether. Instead, you might be more confident investing in the future, knowing you can find your way out of a jam if necessary.
This article has been contributed by Holly Welles from The Estate Update.