Real estate investing is generally a short-term proposition, in the big scheme of things, and an investor needs a way to get out of every single investment. The plan for unloading a property is called an exit strategy, and every good exit strategy has three essential elements that make it work to build your portfolio.
Exit strategies can take the form of wholesale, a renovation (or flip), rental (or buy and hold), or a lease (where a renter has the option to buy). Other options include liquidating the investment entity that holds the title and refinance, but we’re looking at clean breaks in this instance for investors who want to keep on investing. If you can leave more than one option on the table, do it.
Triggers
Obviously, wholesale doesn’t involve an actual purchase and doesn’t require a trigger. A trigger is the point at which the exit strategy comes into play. For a flip, it may be completion of specific renovations or meeting a budget ceiling. For a rental, it may be a change in the market or hitting a specific equity point. Whatever your exit trigger, stick to it.
Timelines can be triggers, and vice-versa, but can also determine the nature of an exit strategy. An overall portfolio timeline, which lays out an investment plan that includes growth in stages, can determine which properties appeal to a buyer. As an example, an investor who plans to flip single-family homes for three years wouldn’t buy a property with a six-month flip timeline at 2 years and 10 months into the investment timeline. Some investors may want to maintain more flexibility than these elements provide. It’s a good idea to include flexibility within your exit strategy options rather than to give yourself an opportunity to let emotion lead your actions. Within the investment portfolio, after all, a single property and its disposal can make a huge impact that shouldn’t be left to chance.
Whether you’re implementing your investment exit strategy, or just starting to look into property investment, Class A Management has experts who want to help you develop a strategy and grow your investment portfolio. Call us today at 817-295-5959 or e-mail, info@classamgmt.com.