What exactly is an exit strategy?

General Real Estate Investing
1

I hear of it being mention a few times; I always assume it means selling the property?

2

Yes…basically. It means “…if you bought it, what would you do with it…”

Keith

3

Not just selling it, but a strategy or system of selling it. More simply put, “HOW” do you cash out your investment?

For example you might be asked, if you buy a $100K parcel of vacant land, what’s your exit strategy?

One exit strategy is putting a $100K house on it and selling it in two years with the land for $300K, making a $50K profit plus your initial investment back.

4

All the above is correct. An exit strategy is you need to decide before you buy the property how you are going to get rid of it. That should include time and amount. It could also be that you are going to die with it and leave it to your heirs.

5

Always have an idea how you will handle the property after closing and having an exit strategy is critical in your investment plan.

6

An exit strategy includes several areas:

  1. When to sell. The answer here is often based on your investment goals. If you bought a below market SFR and anticipate in 5 years that you will make a 50% ROI and then take that money to buy a multifamily. Then your exit strategy will execute in 5 years.

  2. How to sell. You can sell it outright. Sell it on contract and enjoy an income stream and then a balloon payoff or sell it on a land contract over a period of many years.

  3. What to sell. You can sell it as a whole property or chop it up and sell off parcels or remove the house and sell the two separately. You could turn them into condo units or a townhouse. You could add another house or convert the SFR into a duplex.

An exit strategy is a combination of the most profitable use of the property in combination with your personal investment goals.