How Well Have You Strategized Your Exit?

March 1, 2018 By Larry Arth

Buy a property, fix up and sell for a profit, or buy a property rent it out for a while and then sell for a profit. Yes this is the exit strategy of many people I talk with. Like knowing you intend to sell for a profit is an exit strategy. Well it may be an exit strategy for the person who complains they did not make any profit but it sounds more like an intention than a strategy. Real exit strategies actually have some strategy involved.

Things to consider

Demographic shift:

When you are planning your exit strategy, are you considering the Demographic Shift?

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Understanding some facts about families and their buying or rental habits is paramount to executing an exit strategy. – The sizes of families have been shrinking over the years. In fact, the numbers of households with no families (people living alone or without another family member, some still take on a roommate) have increased 5 fold in the past 50 years. From 7.9 million in 1960 to 39.2 million in 2010 (Source: Census Bureau). This family size continues to shrink. Meanwhile the number of actual households has increased dramatically from 45.1 million households to 77.5 million households.

Most highly sought after homes:

The number of households occupied by Non Family units is now more than 50%. With the smaller family sizes and the increased cost to maintain the actual dwelling, people are looking for smaller homes. 3 bedroom homes and less are becoming more and more sought after. Did you know that the 3 bedroom homes of average size and priced at the area’s median home price represent the sweet spot for today’s home buyers?

When investors purchase these correctly, they have have increased their buying audience. They can be sold to empty nesters sizing down, the first time home buyer (2nd largest home buying segment). And the single female. Yes, the single female alone makes up for 20 percent of all home purchases.

Tenant purchases:

A diligent investor may consider this when they have tenants that fit the ideal buyer’s description. Many times the tenant can become your buyer when it is time for you to liquidate. I personally have sold about 22% of my rental properties to my tenants. You can create win win situations for you and for them by structuring a deal that benefits you both – and who does not like a win win?

Cash Flow for you while they are your tenants, Equity Growth for you when you sell to them as well as lower liquidation costs. Plus the tenant can acquire the property with low acquisition costs when you the investor thinks win win and structures the sale to help cover their acquisition costs.

1031 Exchanges:

For some investors who wish to reposition their investments, they can do what is referred to as a 1031 exchange. This essentially allows you to sell your property and instead of being taxed on the capital gains, which is customary when selling investment property, you can simply transfer your gains into the next property and avoid having to pay the capital gains tax at this time. This is a common practice with savvy investors. There are certain rules that need to be followed and, if you opt to do this, it must be disclosed when you market the property for sale. Read more about 1031 exchanges.

Marketing time:

There are a number of things you can watch for to determine when it is the optimal time to sell, many of these things require deeper diligence and an eagle eye on the economy. Looking deep to forecast where the market is heading is the edge that the seasoned investor holds. You want to know how long the current marketing time will be so you can properly calculate holding cost and ROI.

Marketing strategy:

Everyone knows you should “buy low and sell high” yet most people do the opposite. Most people follow what the masses are doing. Of course the masses tend to get caught up in the hype during the peak of a seller’s market everyone tends to get caught up in bidding wars and therefore prices rise beyond values. The non-seasoned investors are fearful that they may lose out by waiting so they buy. (Buy at a time they should be selling.)

The seasoned investor knows that what follows a seller’s market is a decline swinging down toward a buyer’s market. This is the time to sell your current investment property and reposition to the next emerging market.

Strategize your ROI

As you can see those who actually strategize their investment exit strategy can have a pretty clear picture of what kind of ROI they can have on a property. It is all about being purposeful.

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