Most people don’t get into real estate investing because it’s a fun pastime. Rather, for the majority of real estate investors, it is a means of creating financial wealth. Over time, your real estate investment properties should appreciate in value and provide you with substantial cash flow on a monthly basis.
Some investors decide to hold on to their properties for the long term and benefit from positive cash flow while their properties appreciate in value. Others prefer to fix up properties and sell them for a profit shortly after acquiring them. There is no right or wrong exit strategy. It really just depends on the situation and the needs of the investor. However, situations may arise that make having more than one exit strategy critical to an investor’s bottom line.
Different Real Estate Investing Exit Strategies
Real estate investors are fortunate to have many options at their disposal when they decide to sell their investment properties. If you’re just now venturing into the exciting world of real estate investing, you may be wondering about how to go about selling your properties when the time comes. There are four basic exit strategies that you can use to sell your real estate properties:
- Using a Real Estate Agent – Many investors, myself included, find it valuable to build strong working relationships with a handful of realtors to help find and sell their properties. Real estate agents have access to valuable industry resources that can greatly expedite the selling process. Unfortunately, this benefit comes at a cost. Most realtors earn a commission of six percent for every property the help buy or sell, which can significantly cut into your bottom line.
- Selling For Sale By Owner – Forgoing a real estate agent can save you a significant amount of money. You may be able to keep from paying commissions by going about the selling process on your own, but it may take longer to sell your property, which can cost you more than the carrying costs in the long run.
- Using Seller Financing – Traditionally, buyers receive a mortgage loan from a lender and pay sellers in one large lump sum for the purchase of the property. However, many real estate investors choose to use seller financing instead. Seller financing allows an investor to receive a down payment from the purchaser as well as fixed monthly payments that include interest. The added interest can result in significantly higher profits in the long run.
- Lease Options – For some investors, lease options are their exit strategy of choice. Lease options require a potential buyer to make monthly lease payments to an investor as well as pay an extra fee for the option to purchase the property before a pre-determined period of time. This provides investors with cash flow plus an additional fee that can amount to thousands of dollars while locking in a buyer.
Why You Need More Than One Exit Strategy
It is essential for you to have an exit strategy in place before beginning on a real estate investment project. Sometimes, however, things can go terribly awry, and you may need to adjust your investment plans by using another exit strategy that will allow you to maximize your returns on your investment property.
For example, a couple of years ago, I had a realtor in place to sell my latest investment project. From past experience, I knew that I could utilize my realtor’s expertise to help sell the property before my next mortgage payment was due on the property. Unfortunately, she became violently ill and had to be hospitalised for what seemed like an eternity. Due to the fact that I did not have another exit strategy in place, I ended up having to pay an extra month of carrying costs on the property. If I would have already had another exit strategy organized and in place to use as a back-up, I would have saved $2,000.
As you can see, there are many exit strategies that you can use to sell your investment properties. There really are no right or wrong strategies. It all comes down to what your needs are. But, take it from me and thousands of other investors that have been put in similar situations, having more than one exit strategy can save you valuable time, and we all know that in real estate investing, time is money.