October 15, 2020

When The Clock Strikes 12: Time to Make Your Real Estate Exit Strategy

“I want to teach people to invest in real estate safely, profitably and creatively… freeing them to spend time with family and friends, volunteer their time, and contribute their gifts to the world.“

Augie Byllott
CEO and Founder, Creating Wealth USA

Real Estate Exit Strategy

From a classic Disney story of immense humility and determination, the world played witness to the unfolding of a story of a girl. With a pure heart and soul destined for the coveted “happily ever after”, Cinderella has inspired millions of readers of all ages. It has instilled in our hearts lessons and learnings that can make us all winners in life. Even the real estate industry has its own takeaways from that widely-celebrated Disney tale. 

People who engage and enter real estate investing come in with one focal purpose — financial benefits. Starting a real estate business is certainly crucial but it’s no secret that the whole point of making investments is to make money by strategizing on how to earn it.  Indeed, with its one characterization of being lucrative, making money in the real estate business should sometimes be done ingeniously and creatively. One good example of this money-making scheme is choosing your real estate exit strategy. 

What is a Real Estate Exit Strategy?

A Real Estate Exit Strategy is a plan in which a real estate investor intends to remove himself from an investment deal. In essence, an exit strategy is exactly what it sounds like: a way out. The decision to implement this strategy can most of the time be critical but is done to ensure maximized profits yet minimal risks. At times, some investors neglect the importance of a proper real estate exit strategy which can greatly affect their businesses and investments.

On the other hand, when it comes to planning your business exit strategy, there are no right or wrong answers. An entrepreneur’s decision can sometimes be subjective as there are a lot of factors to consider when it comes to their own investments. But nevertheless, this exit strategy is undeniably positioned to make sure that an investor still has the prerogative on whether or not to push through with his current investment while guaranteeing an income.

What is the Importance of a Real Estate Exit Strategy?

✓ Minimized and Reduced Risks

While you determine an appropriate real estate exit strategy, you also create a plan of action. That means, you’ll also learn to minimize and reduce fatal risks when it comes to your own investments. It is when an investor evaluates his potential exit strategy before purchasing a property. They realize the risks associated with the investment at an early stage.

✓ Maximized Profits

Having an exit strategy can save you money throughout your real estate investing career. This system is also created to allow you to achieve your financial goals as it makes you understand and realize the proper approach which will apparently result in maximized profits. It also teaches you to be wise as you spend and invest in the real estate business at the same time.

✓ Proper Decision Making

The real estate business can be totally demanding. It demands time, effort, knowledge and the ability to negotiate and to find the right deals. But what if suddenly you realized that real estate investing isn’t really for you? What if you’ve lost your passion for it or it’s not just worth your efforts? This is when your exit strategy enters the picture and helps you in this decision making!

✓ In cases of Emergencies

Life emergencies are inevitable thus real estate investors are not exempted from these circumstances. At times when an investor might find himself stuck in a life-and-death situation and is in desperate need of money, a real estate strategy can help him sell the property faster and turn it into cash.

✓ Property Expansions and Bigger Investments

Real estate exit strategies are also beneficial for investors who are considering to expand their properties and have bigger investments. Exit strategies also make investors understand the management of different investment properties just like multi-tasking. With this, the goal to attain personal and business stability can be achieved at the same time.  

How to Choose the Right Exit Strategy?

There are a lot of key factors to consider upon planning an exit strategy. At times, one strategy can be effective but the other one isn’t. But one thing’s for sure, choosing the right real estate exit strategy can make or break your business. This means it can also affect your real estate investing career as well as your investments and its profits.

Here are some factors for you to take into consideration:

  • Short and long-term goals
  • Experience level
  • Time to close
  • Purchase price
  • Property value
  • Property condition
  • Market conditions
  • Supply and demand
  • Financing options
  • Profit potentials

It is just right to understand these factors before identifying which real estate exit strategies an investor will follow as it can affect his business at large. As an entrepreneur, one should always be familiar with the consequences of his actions and undertakings as the business is dependent on these considerations. So, better be aware!

What are the Factors that could ruin a Real Estate Exit Strategy?

It is also essential to know some factors which may ruin a well-planned real estate exit, such as: 

  • Depreciation
  • Tenant issues resulting in lost rent
  • Unexpected maintenance costs
  • Poor property management which can diminish the value and hurt potential cash flow
  • A distinct lack of demand, or backing out of a lender that may prevent the property from being flipped

What are the Top Real Estate Strategies that I can utilize on my investments?

Exit Strategy #1: Fix-and-Flip

Fix-and-flip is a strategy of purchasing a property, renovating it then selling it at a profit. Investors usually buy a property at a lower cost because of its condition. This real estate exit strategy also results in the highest profit margins, as it allows the real estate investor to sell the property at full market value. 

Exit Strategy #2: Buy-and-Hold

Buy-and-hold is a long term passive strategy where investors usually keep a relatively stable portfolio over time, regardless of short-term fluctuations. This exit strategy is popular for real estate investors looking to build up equity in a real estate property. As appreciation and equity build up over time, these investment properties can be sold for a profit. 

Exit Strategy #3: Wholesaling

In wholesaling, the investor contracts a home with a seller, then finds an interested party to buy it. Most of the time, real estate wholesalers generally find and contract distressed properties. This exit strategy is highly recommended by property investors when they need to end a real estate investing deal because it saves the investors’ time and effort.

Exit Strategy #4: Seller Financing

Seller financing is an excellent strategy for exiting a real estate property deal. In this case, the seller finances the deal and acts like a bank. This exit strategy benefits sellers as they are awarded monthly payments to cover their mortgage loan and their return on investment also increases through interest.

Exit Strategy #5: Lease Options

This type of exit strategy allows the real estate property owner to rent the investment property to a tenant, but with the option to purchase it after a certain period of time. In some cases, a portion of the monthly payment is put towards the purchase price of the property.

So now you know! Before engaging yourself into a real estate investment deal, you should know and understand how to creatively exit the investment property to make a profit. A real estate exit strategy is a mechanism to allow a real estate investor to cash out of the property with minimum difficulty. But the secret lies in knowing when and how to do your exit properly. Just like in the classic fairytale of Cinderella, she was able to exhibit vigilance and presence of mind when the clock struck midnight and tried to leave and exit the premises of the kingdom where Prince Charming lived. It was in that specific moment that the story unfolded to the world one of the greatest lessons of that bedtime story. In this life, you will learn that timing is everything. And to be able to possess that meticulous skill of knowing your perfect timing, in this case performing your real estate exit strategy, is something that would ultimately separate you from the rest. 

About the speaker

Real Estate Exit Strategy

Augie is the nation’s leading expert on creative financing and helping people build financial freedom with real estate. In the past 15 years, Augie has purchased 598 houses without banks, cash or credit. He is also the Founder and CEO of Creating Wealth USA. Join us as our guest speaker, Augie Byllott discusses creative exit and purchase strategies! There is no way to miss this event! It’s two days before our anticipated Annual Summit, Finding Opportunities in Crisis: Real Estate IQ’s 1st Annual Investor Summit! Click HERE to register for the event!