What is A Real Estate Exit Strategy?
Real Estate Exit Strategy
Few would argue that purchasing a piece of real estate requires a good strategy in order to maximize your investment. However, choosing a good exit strategy can be just as critical. As a matter of fact, many real estate investors plan or consider their exit strategy before buying a property. In this article, we discuss the importance of real estate exit strategies and what you need to consider.
There can be many reasons for implementing an exit strategy. Maybe you want to cash out and use the equity for another transaction. Or, perhaps you will be retiring and no longer want the responsibilities associated with owning real estate? Whatever the circumstances, a sound exit strategy will help you minimize risk and maximize your investment. Let’s explore some of the most popular exit strategies.
- Buy & Hold – In this scenario, the biggest success factor is to buy real estate that will appreciate and accumulate value over time. This could be utilized for short-term (5-7 years) or long-term (10+ years) situations, depending on your investment goals. Good property management is important to maintain the property and create long term value. An experienced real estate advisor can help you determine if the property you want to buy would be suitable for a Buy & Hold strategy. Rachuba Real Estate Advisors offers a variety of services to support this strategy, including property management services.
- Lease To Purchase Strategy – Maybe you think it’s time to invest in real estate for your business? Perhaps the timing is not ideal to make a large investment at this time? In this case, perhaps you want to lease the property now with the intent of purchasing it later. In this scenario, the owner provides a typical lease for the tenant and the tenant makes monthly payments. The option is a legal agreement that allows the tenant to purchase the property at a pre-determined price, in a pre-determined amount of time. Often, the rental payments are applied to the purchase price. This option provides positive cash flow while giving the owner the opportunity to wait for the slow market to take an upturn. Tenants who participate in this type of transaction often take good care of the property, since they hope to own it. An experienced real estate advisor can help you determine if this strategy makes sense for you and your situation.
- 1031 Exchanges – This strategy often allows you to utilize the proceeds from the sale of one property to buy your next property, and potentially avoid capital gains taxes. However, this type of exit strategy should be utilized under close advisement from your tax accountant and/or financial planner as there are many factors that must be considered to take advantage of this option. An experienced real estate advisor, working in tandem with your professional advisors, would be able to help you navigate the pros and cons of a 1031 Exchange for your property. Buyer Beware: All situations are unique and property owners should always consult their tax attorney or accountant before executing any exit strategy.
A good exit strategy is a key to maximizing your real estate investments. Rachuba Real Estate Advisors has over 40 years of experience and works collaboratively with your professional services team to make the proper recommendations for your property and your unique situation. Contact Rachuba Real Estate Advisors today!