When Should You have a Plan B in Real Estate Investing?

It is always a good idea to have a Plan B exit strategy when investing in real estate, especially if you are new to house flipping or rehab to rental.

In real estate, there is often no 100% guarantee on what is the best exit strategy for a property. You can make a solid plan on whether to buy and sell or buy and hold based on your finances, overall investment goals and what’s going on in the existing housing market; yet, certain factors will always be outside your control.

As part of your business plan, research and outline various exit strategies that will work for you. Understand what exit strategies work best for what kinds of investment properties. The more exit strategies you have at your disposal, the more opportunity you will have in real estate investing.

Why You Should Have an Alternate Plan for Fix and Flip and Home Rehab Projects

Whether it’s an unexpected development in the neighborhood where you just purchased a home or a change in your financial portfolio, certain factors in property investing are simply outside of your control.

Some of the most common reasons property investors go to their Plan Bs are: market shifts; over-estimating the value of a property; and a property sitting stagnant on the market.

A good skill to help minimize having to go to a Plan B is being able to accurately calculate the After Repair Value (ARV) of a property before you make the investment. Calculating ARV is a skill that can be sharpened through practice and the right research.

Also, remember that knowledge is power, especially in real estate. Rely on your industry partners to help you find the best deals and get the inside tips and tricks to successful property investing.  

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Ways to Develop a Plan B when Rehabbing Real Estate

As part of your exit plan for a property, have in mind a Plan B if needed. Use these scenarios for fix and flipping or rehabbing to rent to help you determine the best Plan B as you move forward in real estate investing:

  • If you can’t flip a home as planned, could you rent it out? Are you comfortable being a landlord? Do you have your investment portfolio established and financing pre-approved for long-term rental investments?
  • If you are not interested or ready to become a landlord, you may need to consider dropping the price of an investment property that is sitting on the market too long. Have you leveraged your funds in a way that allows you to adjust your profit margin?
  • If you are rehabbing a property into a rental unit, are you investing in renovations at a quality level that allows you to confidently put the house on the market, if need be? Spending a little extra on the repairs and renovations can give you the alternative option to flip the house if that option suddenly becomes a more profitable strategy.

Most importantly, when you first begin in real estate investing, have a plan in place that includes exit strategies and goals. If unexpected things pop up, you will be prepared to shift as needed and stay on track to meet your financial goals.

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.

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