Common Exit Strategies for Investors
Exit strategies are the plans that real estate investors develop for how they will dispose of their investment and realize a return on their investment.
Here are some of the most common exit strategies that real estate investors may consider:
- Fix and flip: Investors who purchase distressed properties at a discount and renovate them for resale may use a fix and flip strategy. This involves selling the property as soon as the renovations are complete, typically within a year of purchase.
- Buy and hold: Investors who purchase properties with the intention of holding onto them for an extended period of time may use a buy and hold strategy. This may involve renting the property to tenants and collecting rental income, or holding the property until the market value increases.
- Refinancing: Investors may use a refinancing strategy to extract equity from their investment property by refinancing the existing loan with a new one. This can provide cash to use for other investments or to pay off the original loan.
- Sale to a partner or investor: Investors may sell their investment property to a partner or investor who is interested in the property and willing to purchase it at a premium.
- Sale to a third party: Investors may sell their investment property to a third party, such as an individual home buyer, another real estate investor, or a real estate investment trust (REIT).
- 1031 exchange: A 1031 exchange is a tax-deferred exchange that allows investors to sell one investment property and reinvest the proceeds in a similar property without paying capital gains taxes.
It’s important for investors to carefully consider their exit strategy before investing in a property, and to have a backup plan in case their initial plan doesn’t work out.
By developing a solid exit strategy, investors can help to ensure that they can maximize their returns and achieve their financial goals.
