A real state exit strategy is a detailed plan meant to help you remove yourself from or exit a real estate investment.
An effective exit plan is vital to your success as a property investor because it will help you maximize your earnings and mitigate risk if you need to remove yourself from a real estate business venture.
Why it’s important to have an exit strategy
A well-developed real estate exit strategy will save thousands of dollars throughout an investment career. That is why it’s never a good idea to start negotiations with a seller before you determine the best way to exit the deal
An exit strategy will guide your investment decisions, helping you maximize profit and avoid unnecessary mistakes. The approach might seem cumbersome in situations where speed is crucial
but over-eagerness will just increase your risk and remove the opportunity to carry out future negotiations from a position of power. Ignoring your exit strategies will reduce your potential profitability and increase your risk at the same time.
Real estate exit strategies you can implement in the UK
There are several exit strategies you can implement for a real estate asset. Your preferred choice will largely depend on your level of experience and the amount of cash you’re willing to invest.
A wholesale deal is a situation where the property investor takes on the role of a middleman between sellers and end buyers. The investor finds and quickly sells a property for a significant profit margin. There are two ways to implement this kind of strategy.
(1) You can sell your purchase contract to a final buyer
(2) You can buy the property then immediately resell it to another interested party to make a double close.
House flipping involves buying a house, renovating it, and selling it for more than the original cost of investment.
It’s a great approach if you’re looking to maximize profit as it allows you to sell the target asset at full market value. But, there are a few things you need to do to maximize your chances of success.
(a) You should always look for undervalued properties in markets with strong demand
(b) Find a reliable team of contractors who will respect your budget and timeline.
(c) Sell the property as quickly as possible for the best offer.
It is worth noting that house flipping involves a significant amount of risk, so you should proceed with caution.
Buy and hold
Buy and hold is a lot like flipping. The main difference is that you rent out the property instead of selling it. It’s worth noting that this approach differs from simply buying a property at market value and renting it out.
Buying and renovating an underpriced asset offers a much higher return on investment, as it lets you set high rental fees. It is a great exit strategy if you want high-equity assets.
Seller financing is an arrangement where the buyer pays the seller installments (with interest) instead of taking out a bank mortgage.
The approach is beneficial to both the buyers and sellers for several reasons. If you’re the buyer, seller financing can help you purchase several properties without affecting your credit score. It will also help you close deals quickly and get little or no down payment deals.
If you’re the seller, it will help your listings perform better than others in the market. It can also create a monthly revenue stream (at a reasonable interest rate) and reduce your tax burden.
A traditional exit is one where you buy a property then sell it for a higher price through a real estate agent.
Investors who take this approach usually buy the properties with personal finances or partner with a mortgage lender. While it is preferred for its simplicity, you should know that there is a risk you could suffer high holding costs and small profit margins if you don’t buy in the right market.
Your profit will depend completely on the asset’s purchase price, so it is vital that you get the best possible deal. You should also look for focus on learning negotiation techniques, and finding motivated sellers and high-performing markets.
A lease option allows an owner to rent a property to a tenant then sell it to them at a later date. The owner and tenant must agree on how long the rental period lasts. Once it expires, the tenant will have the option to continue with the purchase. All subsequent monthly payments will be made towards the property’s purchase. It works a lot like seller financing in this regard.
Tips for choosing an exit strategy that works for you
Set clear objectives
Setting goals before you purchase a property will help you choose a clear benchmark for what you intend to achieve. It will also enable you to choose an appropriate exit strategy.
Study current financial performance
Studying your property’s current financial performance will help you model a multi-year forecast. The projection will enable you to determine its investment potential and design an effective exit strategy if it does not meet your expectations.
Buy assets that you can sell
Buy a property that will be easy to sell. Single-family homes, for example, are easier to sell than condos because there is more demand for them.
Plan for the worst possible outcome
After you do enough planning and research, use the information you’ve gathered to determine the worst that could happen if you make the purchase. If you are willing to accept the worst-case scenario, move forward with the property.
The strategies we’ve discussed in this article should help you develop a suitable exit plan for your property investment. But, please don’t hesitate to reach out if you need extra help. We’ve got a community of property investment experts waiting to help you.