Top 3 Investment Property Exit Strategies

There are so many approaches to real estate investing. With that said, careful planning and evaluation are the key ingredients to all profitable real estate deals. Exit strategies are designed to continue to earn profits or maximize profits for the investor,while minimizing the investor's involvement in them. Deciding what real estate investment exit strategy to use should be based on the type property you are purchasing, your life style and financial goals. From Stephen Covey's, 7 Habits of Highly Effective People,begin with the end in mind.  Beginning with the end in mind will allow you to maximize your returns and make any necessary changes along the way to accomplish your goals. There are three most common real estate investment exit strategies. Buy and hold, flipping and lease to own. Each exit strategy should be evaluated carefully to maximize returns.

Buying a property, renovating it and selling it is called "flipping".  The goal is to buy the property below market value, quickly make the necessary fixes, to minimize holding costs and sell it for profit. This exit strategy relies on the principle of appreciation.  Appreciation is defined as the increase in value of an asset over time.  Appreciation is usually realized over a long-term horizon. It can be difficult to time the market, but it can be done with the right property and market conditions.  Properties that are located in high demand areas tend to cost more, which can decrease the cash flow potential if a significant down payment is not made. Even when a large down payment is made, opportunity cost should also be considered. Carrying costs may be high and rent may not be able to cover them. Just because a property costs more doesn't mean it will generate more cash flow. In fact, the opposite might be true based on the above scenario. These homes typically generate a negative or very low cash flow compared to the initial investment.  Therefore, a rehabbing exit strategy might be the best option taking into consideration type of property,market condition, size of down payment and purchase price.

Buying and holding investment properties and renting them out is also a popular exit strategy. It is slightly contradictory because the investor isn't necessarily selling the property, but merely steps away from day to day involvement. The property can be passed down through generations and never be sold. This exit strategy can increase your wealth, build equity and generate cash flow. The most important factor in using the buy hold-rent exit strategy is looking for properties that generate cash flow. The rent needs to be able to cover all of the expenses incurred with holding the property. Be sure to consider all of the cost of holding an investment property. Maintenance, repairs, property management fees, taxes, insurance and mortgage payments should all be included.

Many investors are not interested in the idea of being a landlord for an extended period, but are also not into market speculation. Many landlords will opt for lease to own agreements with tenants. They can generate cash flow in the short-term while minimizing risks. Usually, the deal is structured with a down payment made by the tenant to secure the property and show good faith. The landlord may also structure the deal were the tenant is responsible for some of the repairs, thus further increasing cash flow. This exit strategy can also provide the landlord protection in a soft market. Landlords may secure a  tenant that is willing to purchase the property at a future date for more money than the open market would provide. If the option to purchase is not exercised, the investor still owns the property and is free to sell if desired.