When Rose approached me to ask if I could suggest a beginner’s guide to real estate investing, I offered one better. Since I’ve been investing for a couple of decades now, and have known her and her family even longer, I suggested we sit for a spell to discuss her financial goals and how investing in property might help her to achieve them.
That way, she’d know what exit strategy she should focus on for her real estate investments at the beginning of her career as well as throughout the life of her business. As her eyes grew wide at the idea, it was clear that my suggestion hit home. So, we set a date to talk about her becoming a real estate investor and what kind of strategies she could consider to ensure she’s a successful one.
Which Exit Strategy is Right for Your Real Estate Investments?
Formulating a real estate investment strategy for each property you buy, and for your business as a whole, is a crucial step to take toward reaching your career goals. But, to successfully strategize, you have to first understand your options—including how and when each one may benefit you best. So, let’s compare the three exit strategies you’ll be considering as you evaluate deals as well as how they may impact your potential returns and the longevity of your real estate investment company.
Typically, when you wholesale a property you buy the home at a price that is below market value and then assign your contract rights to another buyer or close and the property and then sell it, usually to an investor, for slightly more than what you paid. It’s a good way to make a few extra bucks with a minimum investment of your own money and time—especially when you’re a new investor whose done few, if any, rehabs. Wholesaling properties is a good way to build capital and experience until you can handle bigger projects.
In fact, other than sourcing the deal and finding a second buyer, there is little else that you need to do—except, of course, inform the seller. Some investors get a bad reputation for simply not being honest about their intentions. And, that’s unfortunate. Provided the terms of the contract are honored and you’re also upfront with the seller, most homeowners or their agents won’t take issue with someone else actually closing. And, that honest exchange can be of great benefit to you.
There are a few potential snags with wholesaling to look out for. For one, you’ve got to find a buyer to assign each purchase contract rights to. But, just as it takes time to build a network that makes finding off-market properties for below-market prices easy, it takes time to grow a network of investors who will buy them from you. Plus, in some states, you might need to close on the property yourself before selling it to another investor without rehabbing. So, you’ve got to check your local laws to see what’s allowed and what isn’t. The good news is that these potential problems aren’t impossible to solve—if you’ve got a ready-made network of investors eager to help with, or buy, your wholesale properties.
Buying a property to hold is what it sounds like: purchasing a house you don’t intend to sell right away, but instead hold onto until market tides shift and the property’s value goes up. Most investors find tenants to cover the mortgage and operating expenses—and then some—whether they plan to hold the property for one year or well into retirement.
Since not every rental market yields the kind of net returns you may be looking for, conducting market research on the best places to buy rental property is a good idea for getting started with this strategy. This greatly increases your chances of creating positive cash flow until, and if, you decide to sell later down the line.
Making this strategy really work to your advantage, however, takes a lot more hands-on effort over the long term. In addition to maintaining the property at all times—even when it isn’t occupied—you’ll occasionally have to deal with problem tenants, long vacancies, and changes to local landlord tenant laws. But, when you weigh these normal frustrations against the benefit of receiving passive income, holding a home can be a good strategy.
Plus, any problems you might face your network of fellow investors has probably seen, and solved, before. For example, a call to your network for marketing ideas might be all it takes to fill a vacancy fast. And, the bigger and more experienced your network, the easier all of your work will be.
Rehab and sell
When you buy, rehab, and resell houses, the goal is to be in and out of an investment in several months, rather than years, and still realize a solid return. This strategy works well in neighborhoods where you can find a distressed house but property values are also on the rise.
Since more work is involved in readying a property to sell—and more money is needed to facilitate all the repairs—it’s also best suited for more experienced investors. Knowing which renovations will add value to a property as well as understanding which ones will appeal most to your target market, take time to master. So does finding contractors you trust and hard money lenders you can rely on. It can certainly be done, however—especially if you take on minor fixers that may just need a fresh coat of paint first, then work your way up to homes that need top-to-bottom overhauls. And, provided you buy below market value and keep your renovation costs within budget, the returns when you sell could be well worth the extra effort.
Where most investors run into trouble using this strategy is in incorrectly calculating the repair costs or doing too much too soon. If you underestimate the price to renovate a property, for example, you might pay too much to buy it. This could negatively impact your returns when you sell. Again, this is where having a dependable network, as well as a mentor, can help you turn things around if you run into trouble. And, we’ve all been there. Still, that doesn’t mean you’ll have to take extreme measures, like selling your property at a loss or closing up shop—not with a good team on hand to guide you through the tough calls.
In the end, the exit strategy you choose can change from property-to-property. So, allowing for some flexibility in your overall plan can be helpful, particularly if creating diversification in your real estate portfolio is important to you. And, if you’re ever on the fence about which direction to take—as we all sometimes are in the beginning—lean on your network for ideas and solutions.
Better yet, find a real estate investing mentor before you buy your first house. That way, you’ve got a partner in strategy from the start who helps keep your investment goals front and center. In fact, seeking the support of a strong network and a mentor is probably the most strategic move you can make—on any deal.
Make Any Exit Strategy Work by Strategizing With the Right Team
When I started investing in real estate, I knew I wanted to be in it for the long haul. And, it was by becoming an independently owned and operated HomeVestors® franchisee that I found the approach to investing that worked for me and my goals. Not only was I trained to recognize potentially great deals, but I was also taught how to choose between exit strategies for the best possible returns.
But, more importantly, I was given immediate access to a network of regional HomeVestors® franchisees and one-on-one mentoring from my Development Agent. So, not only did I learn how to wholesale homes, buy-and-hold properties, and renovate and sell houses strategically, I had an experienced team who helped me execute each plan quickly, successfully, and ethically. As a new HomeVestors® franchisee, Rose has these options now, too.
Learn to strategize your investing business with the right team to help guide you on your way to a professional real estate investing career. Contact HomeVestors to get access to your network and mentor today!
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