Many property owners already have an exit strategy in mind before purchasing real estate. Planning ahead allows you to be ready for anything and avoid issues like tax implications. You have several real estate exit strategy options to look into, some of which may fit in better with your business plan.
Exit Strategies for Your Investment Properties
Sell Your Property
Probably the most common exit strategy is selling the property. You can get equal or greater value than your purchase price if the property value increases after a buy-and-hold approach, depending on market fluctuations and economic conditions during that period. If not, you can also flip the house by making improvements and selling it at a higher price.
Refinance
You can choose not to let go of your property investment and refinance your existing mortgage instead to refresh your investment. By taking out a home equity loan, you can liquidate some of your equity and put it into real estate investing. You can even take out a loan with better interest rates to adapt to current market fluctuations.
1031 Exchange
This exit strategy involves reinvesting the proceeds of a sale into another investment property. It allows you to defer capital gains taxes as well as optimize your portfolio. It provides you a chance to achieve higher returns with your investment strategy, although it would be best to hire a tax professional or intermediary to ensure that you don't violate any IRS regulations.
Adding a Real Estate Investor
By bringing in another real estate investor to the fold, you will reduce your investment risk exposure. The downside is that you will have to share the monthly income the property generates no matter the cash flow since it will become a joint venture. This can especially be advisable for huge properties like commercial real estate. While it's not a hard exit strategy, it helps you soften the blow of a downturn.
Seller Financing
Depending on current market trends, you might find it difficult to execute other exit strategies you have in mind. You can opt for owner financing to encourage buyers to consider your property in the real estate market. You will accept monthly payments from the buyer, which can serve as passive income. The seller financing makes it easier for the buyer to reach their property investment goals, making it a more attractive offer.
Auction
This isn't the best real estate exit strategy out there since the final bids might not match property values. However, it is one of the fastest ways to sell your real estate assets as opposed to owner financing where you're looking at a long-term plan. It is a real estate exit strategy, nonetheless, and might be a better option if you need the revenue fast.
Rent to Own
With the state of the real estate industry, there has been a steady decrease in California home sales and people are forced to rent instead. With a rent-to-own exit strategy, you'll have more buyer demand and get steady cash flow in the process. While this might not be as good an offer for commercial real estate, single-family homes could attract more potential buyers.
Donate to Charity
If your goal is not about simply selling your real estate investment, then you can consider donating it to charity. It's one of the simplest real estate exit strategies given that it is not subject to capital gains tax. After doing so, you can deduct the donation from your federal income to reduce your tax liability.
Benefits of Having an Exit Strategy
Capitalize on Appreciation
Since your property appreciates in value over time, especially with commercial real estate, you'll likely sell it at a greater value than when you bought it. An exit plan allows you to take advantage of this perk; however, you’ll need to do your due diligence to calculate the costs accordingly such as factoring taxable income and current economic conditions.
Minimize Risk
Having multiple exit strategies allows you to reduce the risk of economic downturns, emergencies, losing money due to low rental income, and other issues. You'll have a better grip on your investment goals, which is crucial if you have a low-risk tolerance for certain investments.
Potential for Future Investments
Selling one property could mean the purchase of another. Whether it's single-family or commercial properties, the right exit strategy allows you to expand your investment portfolio without going into a large amount of debt. The liquid capital will be more than enough for a sizable down payment in another real estate investment.
How to Sell a Property Faster
Research Local Market Conditions
The current market trends play a huge part in whether you'll execute your exit strategy successfully. You can hire a property management company or real estate agent to gain better insights. Experts can tell you when the best time is to sell for the most profitable outcome, help you navigate capital gains taxes, as well as help you find buyers.
Competitive Pricing
Researching the real estate market also gives you an idea of how to price your listing based on property values and competitors. Property owners should also be prepared to negotiate with the buyer. They’ll likely go with a similar property in the open market if it has more favorable terms than yours.
Hire a Marketing Expert
Marketing experts can adapt to different exit strategies and can sell your property faster. Some property managers like Blue Line Property Management offer professional services including online exposure, allowing you to reach more prospective buyers for your real estate exit strategy.
Enhance Curb Appeal
While the point of the sale is to make money, you might need to spend some to ensure the sale. Something as simple as a fresh coat of paint or a neat landscape can help you sell your property faster, especially if you intend to post photos of the property. Having the most appealing option on the real estate market will only help your chances.
How a Property Manager Can Help You
Blue Line Property Management isn't limited to maximizing your rental income. Whether it's single-home or commercial real estate, we can help you take control of your financials by assisting you with your preferred exit strategy. You can even use our free home valuation tool to get started!
