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By Mary Richardson Aspen
People are starting to invest more and more in real estate. The main reason is that it can be a very lucrative business. You can do it as a side job or make a living out of it. However, this doesn’t mean there’s no risk involved. Therefore, you should do a lot of research and develop a solid business plan. Apart from keeping up with real estate investing trends, it would be best if you also planned a way out. This way, you can reduce the risks and maximize your profits. Here are some of the best real estate exit strategies you should know about.
Things to consider before deciding on one of the best real estate exit strategies
The truth is that there’s no such thing as the perfect real estate exit strategy. It all depends on your particular circumstances and your end goals. But in any case, there are some things to consider before making a decision. These will enable you to limit common risks involved in real estate investments.
- Market conditions are one of the first things to consider when choosing a real estate exit strategy. That is because some methods are not applicable under certain circumstances. Therefore, you should always do market research.
- Supply and demand are essential as well. You determine what clients are looking for and how much competition you have.
- Financing is something you should carefully consider. After all, you won’t be able to move forward without it. Thus, it’s essential to know your options.
- Your experience in the field is also essential. You don’t want to get in over your head. Thus, it would help if you opted for strategies with the knowledge and experience to apply.
#1 – The traditional real estate exit strategy
That is usually the most straightforward real estate exit strategy you can apply. It involves buying a property and selling it for a higher price. Easy, right? Well, that’s not always the case. If you don’t make updates to the property, you might not find a buyer willing to accept your asking price. Therefore, make sure you don’t overprice it.
Furthermore, don’t expect to make a big profit. On the one hand, you can use this exit strategy as a starting point in your real estate investment venture. It will help you make some money that you can subsequently invest in a more lucrative property. On the other hand, you can apply it if you’re moving cross-state in California. After you hire movers to relocate and help you settle down, you can sell your old home. Then, use the proceeds to invest in a property closer to your new home.
#2 – Wholesaling
Wholesaling is one of the best real estate exit strategies because of its simplicity. You only act as an intermediary between a seller who wants to sell fast and a buyer willing to pay the right price. Of course, you still have to put in a bit of work. You must identify an undervalued property, place it under contract, asses it properly to set the right price and find a buyer. Once the sale goes through, the seller receives the initial price, the difference between the initial price and the selling price, and the buyer gets the property. Once again, it’s not about making a big profit but building up funds for your next investment.
#3 – Prehabbing
The first two real estate exit strategies are some of the simplest. But they also don’t generate a significant profit. So, if you’re ready to get a more substantial return on your investment, you should consider prehabbing. That is a great option, particularly for beginner investors, because it’s less risky. You buy a distressed property and do only some minor repairs. These often include DIY activities like painting the walls and doing a bit of landscaping. Therefore, the costs are minimal. Once you finish, you sell the property at a higher price. Usually, you’ll have better luck selling to more significant real estate investors with the finances to continue the rehabbing process.
#4 – Fixing and flipping
To make a more significant profit, fixing and flipping are one of the best real estate exit strategies. You buy aproperty below market value, renovate it, and then sell it for a higher price. But be advised that it’s not as easy as it may seem. You can’t just buy any fixer-upper. The location is significant.
Furthermore, you will need a good construction team to complete renovations promptly. Otherwise, you risk losing money instead of making money. You also considered hiring an experienced real estate agent who can find you a buyer quickly.
#5 – Buying and holding
Buying and holding real estate has become very popular. You buy a property and then rent it out for a certain period. You can do this short-term or long-term, depending on your end goals. But either way, it’s very lucrative because you receive monthly cash flow. However, it would help if you considered the responsibilities you’ll have to assume as a landlord before renting out your investment property. After all, finding quality tenants and dealing with property maintenance and repairs can become stressful. Nevertheless, you can always hire a property manager to deal with all of that.
#6 -BRRR
Buy, Rehab, Rent, Refinance, Repeat (BRRR) is another excellent option. This strategy combines some of the previous strategies and can be very lucrative. You buy a distressed property at a low price, renovate it properly, and rent it out. Due to the rehab process, you can set up a higher rent. Thus, you’ll be able to recover your initial investment faster. Finally, you can take out a cash-out refinance loan, use the funds to buy a new property and repeat the process. The idea is to have patience because you won’t make money promptly. But in the end, it will be worth it.
Conclusion
Real estate investing can be very lucrative, but it involves some risks. Therefore, you should do a lot of research and carefully consider your options. Now that you know some of the best real estate exit strategies, it’s time to develop an excellent business plan. That will help you maximize profits and minimize risks. So, don’t underestimate its importance.
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