Flip or Rent? Choosing The Best Exit Strategy!
So, you want to invest in real estate, and you’re ready to turn that ugly house into cash?
Whether the property you find is a “prince” or a “frog” cannot and should not be the deciding factor. Remember that the goal is to make a profit. Focus on how to leave when the “right time” comes.”
Earn your fortune. The time to invest is now.
The “hunt” can be exciting. And excruciating. The result can be “boom” or “bust.” Whether the property is a prince or a frog is not the deciding factor. You don’t have to “love the land.”
To do that, focus on how you will “exit” when the time is right. Leave It, Don’t Love It!
The road to successful real estate investment may not be as smooth as many “experts” tell you, and you must have a careful and well-thought-out plan and a solid exit strategy.
You’re not the only one with a focused interest in the answer. Your loan investor and your lender want to know too.
Why Exit Strategy?
To get the money to buy the property, you will need to present a well-thought-out exit strategy to the bank or private lender to convince them you know what you’re doing. A savvy real estate investor knows that an exit strategy determines what type of offer to make and the best source for financing.
Once you understand which strategy you will use with the property you are considering, it is easier to decide which financing option is best, where to find a lender, and identify the best methods of unloading it at a profit.
Here is a look at two examples.
Short-term Investment – Fix & Flip
Your exit strategy is based on a quick turnover, cashing out within six months. You want a home in an upscale neighborhood, one that will attract buyers with excellent credit. It would be best if you were sure there is an active market for the house, that buyers are available.
As a rule, you would want to sell within six months. You want short-term financing. Lenders for this could include:
- A partner with cash
- A private lender
- Your home equity
- Your savings
- Friends and family members
If the perfect house is in a neighborhood where these buyers are not looking, you need to decide on a different exit strategy.
Long-term Investment – Rental
It might work well if you found a great home in an area that wasn’t attracting quick buyers. You could decide to hold the property and rent it.
For this type of investment, you would be looking for long-term financing. The bank’s standard lender is the bank, but consider checking with private lenders, often more flexible.
You would need to either deal with the property management details yourself or hire a professional to oversee it for you. Many investors feel this is the wise use of their money, freeing them to do their best, finding, buying, and selling property.
In summary, do your due diligence. Have your exit strategy identified and make sure that it is viable before making an offer.
Next, line up the financing that your exit strategy requires. Now do the deal!
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