With so many ways to make money in real estate, how are you going to choose to make your money? Investors can make loads of money in residential flips or rehabs or commercial buildings, apartments, self storage, mobile homes, even vacation property. There are even different ways to profit in each of these asset classes, it just depends on how you wish to exit. But what happens when you have only one exit and it fails? For starters, here is a list of different exit strategies.
- Rent and Flip
- Rent and Hold
- Lease Option
- Sell the entity that holds title to the property
So which one do you choose? Many investors do not wish to use any of their own money or take any risk and they wholesale deals. Others flip or rent and hold for positive cash flow even lease option or refinance. But what if you run into an unpleasant surprise or your exit strategy does not work? Here is just a short list of items that could ruin your exit strategy.
- Tenant issues – a bad tenant trashes the place and does not pay rent
- Cannot flip – demand does not exist, or escrow falls out because the buyer cannot close, lender backs out of the loan, etc
- Unexpected maintenance – surprises and maintenance can add up and cancel out profits
- Poor property management – vacancy, bad tenants and poor operations can diminish value and hurt cash flow
- Depreciation – the value of a market is out of your control, recently dropped in half in some areas
These are just a few reasons why savvy investors avoid losing money on deals by having multiple exit strategies. If you are unsuccessful flipping a property you may be able to rent, lease option and even get a lower payment or take cash out with a refinance. Or if you cannot find good property management or good tenants then you can flip the property. Multiple exit strategies give investors backup plans if your 1st exit is unsuccessful. Most investors that have done enough deals have run into surprises or exit strategies that did not go as planned. Avoiding loses is crucial, you may ruin credit, ruin good relationships with investors and integral parts of your team, even end up bankrupt. Avoiding the valleys will also allow your portfolio to grow more over time. Simply put, multiple exit strategies will lower risk, not to mention, let you sleep at night. My advice, always have multiple exit strategies.