Are you ready to plan your exit strategy before you buy property? To plan your exit strategy for your real estate investment before you buy, may sound like starting your meal with dessert. However, it can prevent you from getting into a bad deal. In his landmark book, Seven Habits of Highly Effective People, Stephen Covey calls the second habit, “Begin with the End in Mind.” This is especially true in today’s real estate market.
Unless you want to wander aimlessly down a highway you need to know your exit before you get on the interstate. In real estate investing the same principle applies. To be successful, you need to plan how to exit the deal when you enter the deal.
This article will discuss what happens when you plan your exit strategy for your real estate investment before you buy.
What is an Exit Strategy
To begin our discussion, first we will discuss “what is an exit strategy.” An exit strategy is essentially the way that you plan to dispose of the property that you are considering buying. To be successful in real estate investing, you must know your exit strategy when you purchase the property. The goal in real estate investing should be building wealth for you and your family, period. Think about the ways that this investment will increase your wealth. Will the deal give you tax benefits, appreciation, or income? If you are fortunate you may get all three in your deal. Or are you looking to recover your expenses quickly and earn a profit?
Why is it important to have an exit strategy?
Many people believe that real estate investing is about buying a piece of property just to possess it. Or, they call themselves “Real Estate Investors”, when they purchase real estate at a specified price and “hope” that that price will increase over time. These types of “investors” are often disillusioned when the cost of maintaining a property becomes prohibitive or the value of the property decreases significantly. But knowing how and when you plan to dispose of the property, helps you decide on how to structure the deal. It helps you decide on the price and the time frame that are suitable for your goals.
What would happen if you had an exit strategy?
If you had an exit strategy, you would have a better understanding of the maximum amount of money to spend on your deal. If the market is good and I know that the property will command premium rents or a long- term lease, then I might use a buy and hold strategy to hold on to the property for long term wealth creation and positive cash flow. If the property is in an up and coming neighborhood, I know that I can make a quick return by forcing the appreciation of the property. Then I may consider a rehab or fix and flip exit strategy to make a quick return on my investment.
Conclusion/Call to Action
Knowing your exit strategy, gives you the confidence needed to know that whatever the situation, you are making the right decision. Wining at the real estate investing game requires knowledge, skill, and abilities to analyze and evaluate every scenario. You will need several arrows in your quiver to hit the bull’s eye with your investing.
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