An important factor in becoming a successful property investor is developing your exit strategies in real estate. The more exit strategies you have at your disposal, the more opportunity you will have in real estate investing.
As part of your business plan, research and outline the exit strategies that will work for you. Understand what exit strategies work best for what kinds of investment properties. Choosing the best exit strategy for a property is just as important as choosing the right property to invest in.
6 Exit Strategies to Consider as a Property Investor
- House Flipping. As a house flipper, it’s crucial to accurately estimate After Repair Value (ARV) before you make an offer. Estimating too low will cut into your profitability, while estimating too high may mean you lose the deal. Know how to effectively estimate ARV by doing the appropriate research first. Also, remember the 70% rule of housing flipping: “Pay 70% (or less) of the ARV of the property minus the repairs needed.”
- Buy and Hold Strategy. Are you considering fixing up a property and renting it out as an investment opportunity? If you like the idea of becoming a landlord, keep in mind you will need both time and money to maintain the rental before you see returns in the long term. Also, make sure you understand the neighborhood’s real estate market. Look for rental comps. If there are only a few rentals in the area, this may not be the neighborhood to invest in a rental property.
- Wholesale Deals. Many professional property investors and rehabbers look to property wholesalers for opportunities vs. searching and negotiating deals with various homeowners or realtors. Wholesalers are experts in finding the best deals and can lead you to multiple investment opportunities at a time. If this is your investment goal, then your exit strategy must focus on leveraging funds for additional investment opportunities and creating efficient timelines for multiple rehabs at a time.
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- Subject To. Buying a property subject to can mean various things based on the clause, such as subject to attorney review, buyer’s inspection or the existing mortgage. When buying subject to an existing mortgage, you are essentially taking the owner’s mortgage payment and transferring the deed to you. While this can be enticing for a seller who needs to quickly move a property, do your due diligence to ensure there are no existing liens nor the loan is higher than the property’s worth.
- Real Estate Agent Vs. For Sale By Owner. If you’re going to sell the home, your exit strategy should include “how” and factor in any associated costs. Weigh the pros and cons of using a real estate agent vs. selling the property yourself. A real estate agent means less time and hassle for you, plus he or she has industry insight, connections and selling experience. However, an agent comes with a commission price tag. Selling the property by owner could put more money in your pocket, but will take a lot more of your time and management, from showing the home to handling all the paperwork when the sale is made.
- Seller Financing. Is your exit strategy open to seller financing? Seller financing, also known as "carrying the contract", takes place when you continue to carry the mortgage and the buyer makes a down payment and monthly payments to you. Essentially, you are the bank and this is often done when a buyer doesn’t qualify for a traditional mortgage. This type of exit strategy would factor into how you leverage funds for other investment opportunities, which is why it’s important to develop your exit strategies before you begin negotiating and making offers in real estate.
Catalyst Funding is a hard money lender who can help build your real estate investment opportunities. With a background in fix and flip projects and other property investments, we can provide resources and guidance to help you through the entire process. We strive to be more than a lender!
For more information, contact Catalyst Funding online or call us at (832) 648-3626.