The Golden Parachute – Know Your Exit Strategy before You Buy!
“Help! How Do I Get Out Of This Deal?”
So you have a house under contract. Maybe, you’ve even already signed the closing papers. Congratulations you’ve got a house to sell!
This is a dilemma many new investors have found themselves facing after rushing into the market without a system or a plan. And scratching your head, asking “now how do I get out of this?” really isn’t a place you want to find yourself. Trust me.
Where’s Your Golden Parachute?
If you’re going to invest successfully and profitably you need to make your money when you buy. It’s one of those golden rules of real estate investing that you ignore at your own peril.
This isn’t just about acquiring properties with potential for appreciation, or at a discount either. You need to know what your exit strategy is before you ink that deal!
The good news is that there several well-established real estate investing exit strategies that give us investors options on how we achieve that critical end goal… selling that house.
5 Exit Strategies, Pick One
Let’s take a quick look at 5 primary exit strategies, and more importantly; the upsides and downsides of each.
1. Wholesaling Houses
Cons: You’re constantly on the hunt for fresh deals. You rely on finding discounted properties and marketing those properties to turn them into cash in the bank, versus adding value with improvements.
Pros: It’s the fastest, easiest, least involved method of flipping houses. Wholesaling is great, especially if you’re new to real estate investing with little resources to rely on. It’s also great for the long term, if you’re working a good system.
2. Prehabbing Houses
Cons: Prehabbing means more hands on work than straight wholesaling. It will add a days to weeks to your turn times.
Pros: In exchange for a little more effort, you can make a beat up wholesale house rental ready, retail ready, or at least worth a lot more to another investor who will do more extensive rehabbing. I personally love this strategy for maximizing profits when flipping houses fast.
3. Rehabbing Houses
Cons: We’ve all seen those reality TV house flipping shows, right? What might be an entertaining ‘booboo’ on TV, can be a complete financial disaster, with lasting consequences in reality. Expect this real estate investing strategy to require more cash, take longer to pay off, and potentially lead to premature baldness. If you’ve seen my haircut, you’ll know I’m speaking from personal experience.
Pros: Rehabbing houses can help uncover big profits. Plus, it really is a ton of fun to see the transformation and flex your design skills.
4. Rent it
Cons: Becoming a landlord really isn’t an exit strategy in itself, but it can help you get cash out of a property. Just be ready for all the ‘joys’ of dealing with tenants and the daily risk that comes with holding real estate.
Pros: Renting out homes can deliver a steady income month after month. It’s income that can be used to compliment or fill in any gaps in wholesaling or rehabbing. But be sure to establish a timeline on when you’re going get out of the rental game.
5. Rent to Own
Cons: This still involves tenants, and frequently those with less than great credit. Depending on how you structure these deals, it can also mean being locked in to an agreement which limits your potential profits.
Pros: On the bright side, rent to own gives you a hybrid exit strategy, which brings in cash flow now and maximizes the end sales price. This can be one of the fastest ways to get money coming back in. Talk to your accountant too. You might even find some cool tax benefits from this exit strategy too.
The Bottom Line:
Make your money when you buy, know your exit strategy, and always have a plan B.
P.S. It also helps a LOT to have a strong buyers list (and waiting list of renters) ready to hit up as soon as a deal comes on your radar.