If you’ve been exploring real estate investing long, you’ve probably heard a thing or two about exit strategies. What you may not understand is how necessary they are. It’s great to plan for success and something you certainly should do while making any investment.
Having an exit strategy, however, isn’t planning for failure. It’s simply hedging your bets in favor of success.
What is an “Exit Strategy?”
Depending on whom you ask, an exit strategy is generally your plan for exiting the real estate deal. Your exit strategy may be long or short term in nature. It’s absolutely essential, though, that you have a goal for the property in mind before you purchase a given property.
Why is This Necessary?
The long and short of it is that different properties serve different needs better. You’d look for different qualities in an investment property you plan to rent to college students than you would for one you plan to flip for an investment. Knowing your goal for the property ahead of time simplifies the buying process and helps to ensure you’re getting the best candidate for your intentions.
Short-Term Exit Strategies
The most common of short-term exit strategies involve buying a home, renovating the home, and flipping the home as quickly as possible.
Some people have even more immediate plans than that. This was more common before the real estate market went south in 2006, but seems to be re-emerging now that recovery is in sight. It involves serving as a broker between two parties (the seller and the buyer).
In these transactions, you buy a property with the intention of turning around and immediately, within hours if not days, selling it to someone else at a higher cost. It’s possible today in high demand markets though not nearly as assured as it has been in the past.
Long-Term Exit Strategy
This strategy is a little more involved, and often hands on, than other real estate investment strategies. This model is often referred to as a “buy and hold” investment strategy. The various ways you can put this strategy to work for you include rental properties, leasing commercial properties, and multi-unit landlording.
If you prefer a hands-off approach to the long-term investment strategy, consider hiring property managers to handle the details for you month after month.
It is true that planning for your exit strategy makes your real estate purchase more likely to succeed. It has the added benefits of saving you money, saving you time, and helping you reach your real estate investing goals much faster.