Many property owners fail to consider their exit strategy until it’s too late. Think about your exit early; when you’re making purchase decisions, renovating investment homes, or even before you invest in your first property.
No one holds onto their investment properties forever. You’ll need to know when you’ve managed to squeeze everything you can out of a particular property, and why it’s time to let go.
If you’re an investor who doesn’t understand the options, we’d be happy to talk through different potential paths with you. An exit strategy is an important aspect of property investment that should not be overlooked.
Let’s take a look at various types of exit strategies and how they can help you as a real estate investor.
Why Do You Need an Exit Strategy?
An exit strategy serves as a contingency plan to mitigate some of the risks associated with having to sell a property. Planning ahead ensures maximum returns on your investment when you are ready to step away from a particular property. But there’s another reason that you need an exit strategy. Peace of mind. You want to know that your future is secure, especially if unforeseen circumstances arise. As a property investor, it’s crucial to have a profit-making exit strategy in mind before purchasing a property.
Think about what might happen if the market tanks and you’re unable to sell a property when you desperately need to. Or, you’ll have to settle for a lot less because the value isn’t where you thought it would be. Selling during a strong market always makes the best sense, and if that strong market happens to arrive when your exit plan is taking shape, you may want to take advantage of that good timing. Your exit strategy protects you from surprises and allows you to leave the market on your terms.
Which Exit Strategies are Best for Your Investment Plan?
There are multiple exit strategies that real estate investors can opt for when you’re ready to sell your property and move onto something else. Understanding these options can help you weigh the benefits and risks of each plan. Some of these may include:
- Selling on the open market. If this is your plan, you’ll want to partner with a real estate agent or broker who knows the local market and the current home values, and you’ll sell your rental home to anyone who is looking to buy. If you’re selling to another investor, having a tenant occupying your home could help you attract better offers. If your exit strategy is to sell to buyers who would live in the home themselves, however, you’ll have to wait until you have a vacant property to sell it.
- Conduct a private sale. You can advertise your property for sale and manage the entire transaction on your own if you know what you’re doing and understand the legal and logistical intricacies that are involved.
- Consider owner financing. If you’re not ready to give the property up completely and you know you want to exit in the near future, a lease option can be a great way to slowly remove yourself from the ownership. This is also an excellent option if you’re renting to tenants who are interested in buying the home you currently own. This type of contract allows buyers to rent a property for a certain period and then have the option to purchase it at the end of that period for a predetermined price.
- Auction sales. If you want to exit quickly, an auction sale might be your best bet. You’ll attract motivated buyers and avoid a lot of the back and forth negotiations that can hold up a sale.
- Initiate a 1031 exchange. If you know you want to get out from under one property but you’re not ready to exit the real estate investing game altogether, a 1031 exchange will help you diversify your portfolio and even defer taxes.
There’s no one way to exit. As long as you’re prepared and you understand why you’re leaving now and how it benefits you, a good decision is waiting to be made on your exit strategy.
Choosing the right exit strategy will always depend on your goals as a real estate investor. Your timeline also depends on how a particular property fits into your entire portfolio. Is there a specific level of cash flow you need? Are you waiting for a property to appreciate to a certain point? Are you ready to buy something else and you need the capital? All of these questions will impact how and when you implement your exit strategy.
The ultimate benefit of having an exit strategy is peace of mind. Knowing there’s a plan in place, regardless of the current economic conditions or the future outcome, can provide a sense of assurance to investors, especially in a time of shifting markets. Planning ahead guarantees you will remain successful and competitive with your portfolio of rental properties.
As a property investor, you must plan for the future. An exit strategy is an important aspect of investing, and you’ll do well to discuss all potential outcomes and possibilities with your trusted team of experts. Talk to your accounting professional or your tax advisor. Consult with your Philadelphia property management. Make sure you understand all of the rewards and challenges that you’ll encounter while withdrawing from a property or a particular market. You need an exit strategy that aligns with your goals and expectations.
Every investment is unique, and there’s no one-size-fits-all exit strategy. Good planning ensures you are always in control of your assets. As we’ve seen in our capacity as professional Philadelphia property managers, choosing the right exit strategy gives you peace of mind, and that’s the foundation of thriving in the property investment industry.
TCS Management is a full-service property management company headquartered in Philadelphia, Pennsylvania, also serving Cherry Hill, NJ, Wilmington, Delaware, Nashville, Tennessee and the surrounding areas. We focus on single-family and multifamily residential property management of homes, condos, townhomes, and apartment buildings.