Exit strategies for property investors is no different to any other business. But first lets get the definition right.
An exit strategy is a means of leaving one’s current situation, either after a predetermined objective has been achieved, or as a strategy to mitigate failure. – Wikipedia
Its that later part of the definition that most ignore and few cannot accept and position themselves within the property on a position of emotion.
Exit strategies for investors are pretty much the single point of mitigation should something go out of hand. They are best defined when you buy and better refined every year.
Here are the 7 exit strategies for investors that we came across putting them in our plan to analyse for any worst-case scenarios.
1) Buy, Refurb and Hold
One strategy which is our go-to strategy is to buy, refurb and hold the property or let out the property to prospective family tenants.
Needless to say you are wanting to enjoy the cash flow that will come your way from time to time each month.
We do have a small twist on this one if you want to push this a little further as an exit strategy.
Hold for a certain investment period i.e. retain the property to let until say next 7 years and sell. This will ensure your portfolio is refreshed with richer stock.
Hold the properties forever and enjoy the cash flow. This isn’t unrealistic specifically if you have properties in a Limited Company.
You will have access to mortgages or funding as long as there is someone who is eligible as shareholder even at your later life.
Here is the thing.
When it comes to an exit strategy, “Plan with the end in mind” does become much more relevant.
When you buy a property, what is your end game?
Hold it forever, hold it for a period of time after which you may have to refurb again or simply sell it.
2) Buy, Refurb and Sell
One other strategy is to just buy the property which needs some work to be done, refurbish it adding more value and sell.
Specifically, if your strategy is to earn cash.
This Keeps investment simple and enables to build your cash pot to invest elsewhere or on another property deal as you like.
3) “Minimise Loss” Exit Strategy
It’s your hard-earned money that you put into property investment with a hope that you make profits via cash flow or capital appreciation.
The investments are very much dependant on how well the due diligence is done, how well the refurbishment has been executed and being able to achieve the profit which makes up the deal.
If it didn’t work as you expect, this exit strategy does rescue you from a lot of future pain coming out early.
Alternatively you could play just like the concept of “Stop Loss” in stock trading, sell the investment and get out of the game when your cash flow or return on investment drops below a certain percentage.
If my return on investment drops below say 15%, I will exit from the investment and sell the property.
4) “Cash In The Market” Exit Strategy
Property prices like any other industry run in cycles and very much adhere to the market sentiment you see elsewhere.
Starting as an amateur investor and later as an experienced, one comes across two scenarios.
With best intentions we buy a property, which left over a period of time sells at double the purchase price.
You come across many scenarios from investors where they either inherit or buy property cheap and due to growth that happens around over a decade or over, the prices hit the roof.
You are able to predict this now via the estimated growth initiatives that are being planned by local authorities and put a number on estimated profit.
Both cases, you are able to sell at a profit and invest in next deal you are after or get that next luxury holiday booked for you and family.
5) Sell The Company Or Shares
If you have been building your property portfolio in a Limited company, it makes it much easier to have this as an exit strategy.
You are able to sell the company as a whole or offer shares within the company in exchange for an investment like any other.
Cash in on exit by selling the limited company or secure investment for further growth by giving shares in the company.
6) Sell To Tenants
If you are buying to hold the property for few years and then sell it off, you might as well negotiate this with your tenants and sell the property as an option.
- Purchase price + Refurb: £65,000
- Monthly rental (@500 PCM) for 7 years: £42000
- Option price on the property to purchase @ £90,000: £5000
- Sale price: £90,000
- Total gross profit = £42000 + £5000 + £90,000 – £65,000 = £72,000 Profit
7) “Portfolio Split” Exit Strategy
Most of us are sold on to this exit strategy on how we intend to become financially independent when we start.
Build a portfolio of say 20 houses following the buy/refurb/refinance cycle. Sell half of the portfolio and with the profits achieved, take off the debt on the remaining half of the portfolio.
Sell half and retain the other half of portfolio with no debt whilst maintaining the same cash flow from the portfolio.
What other exit strategies do you have up your sleeve to add to above list and mitigate risks within your investments?