Developing an exit strategy may be the most important part of your game plan. Knowing your plant of attack will save you valuable time and money. An exit strategy is how you intend to realize a profit from your investment. This can happen in several different ways and it’s important to understand each strategy so you can determine what works best for you.
When choosing an exit strategy, it’s important to research the type and value of the property. These two things may dictate what exit strategy is most appropriate.
The Five Most Common Exit Strategies
- Quick Flip
- Fix and Flip
- Fix & Rent
This is usually the most common exit strategy for tax lien investors. This occurs when another investor or the property owner pays off the delinquent taxes. The investor will receive their money back plus interest. Interest rates are determined by each individual state and may vary.
2. Quick Flip
Selling the property to another investor may be the option for you. You’ll need to once again evaluate the condition of the property and determine an appropriate sale price. There are many investors that specialize in flipping real estate, so pricing the property to sell will work in your favor. In this case, building a network would mean you could already have a potential buyer in mind. This makes for an even quicker and easier transaction.
Wholesaling is a good strategy if you’re looking for quick cash flow because you are able to sell the contract to another investor. If you’re not against doing minor rehab work or if you acquire a property in good condition, this is a great option. With this method, you can sell it under market value to speed up the selling process.
4. Fix & Flip
If you have some extra cash and are looking for a property to fix up, this tried and true strategy is perfect for you. Before choosing this option, it’s crucial to check the numbers to ensure that the margins are worth your time. For instance, if you acquire a property for 30k that is worth 50k and needs 15k in repairs, this may not be the most profitable strategy.
5. Fix & Rent
Rental property investing is a common goal among real estate investors because it provides constant passive income. Like fix and flips, renovations are often required. The key to completing a successful rental property deal is making sure you understand the market. In addition to making sure the margins are good, knowing what other renters are paying in the area can help determine your returns. Doing this will help predict how long it will take for you to make back the money you invested.
For example, if you acquire a property for $30k and spend about $10k in repairs, that’s $40k spent in total. If a similar property in the area rents for $1500 per month, it will take a little over two years to break even. After that, the rental property would be a steady cash flow.
Overall, Choose an Exit Strategy Based on Research
Choosing an exit strategy doesn’t have to be complicated, but it does have to be thorough. Understanding your market and analyzing the margins will help you make an educated decision. It is hard to predict if you will be redeemed or if you’ll acquire the property, but creating an exit strategy beforehand can save you from making mistakes.