You’ve done your due diligence.
You’ve found a great deal.
You’ve acquired it.
You’ve fixed it up.
… But at some point, something changed.
Maybe the market shifted. Maybe you overlooked something in your due diligence. Maybe more sellers came onto the market.
It could be a million things.
But the bottom line is: you meant to sell your rehabbed property but now it’s sitting on the market without as much interest as you were expecting. Or maybe you meant to put a tenant into it but everyone is buying and nobody is renting. Whatever you planned, something shifted and now your plan isn’t quite working out the way you expected.
Has that ever happened to you?
If you’ve done more than a couple deals then it probably has. (If it hasn’t yet, you can be certain that it will.)
It happens at some point to most investors I know.
Fortunately, the best investors have an “exit strategy secret” that they use all the time to keep that from becoming a costly problem.
The strategy is simple but powerful: always have at least three exit strategies whenever you go into any deal.
Let’s say you’re a rehabber and you bought a property with the plan to fix it up and sell it (retail) to homebuyer. That’s one exit strategy. It’s a great exit strategy until a bunch of houses flood the market (which drops your price point and increases competition), or until credit policies tighten up (which can make retail homebuyers scarce). Suddenly you’re forced to make difficult decisions from a position of financial necessity.
The top real estate investors never enter a deal without having at least three exit strategies in place. That way, no matter what happens in the market, they can simply adjust their approach and continue on.
Exit strategies for the rehabber mentioned above may include:
- Choosing to sell at a different price or a in a different way
- Renting the house
- Creating a rent-to-own option
- Turning the property into a short-term (vacation) rental property
Exit strategies may be small adjustments or a total shift in your approach. But the key here is knowing ahead of time and planning for it rather than waiting to the last moment to make your adjustment. (That’s why “choosing to sell at a different price or in a different way” is a viable exit strategy in the list above… it’s a strategic choice that an investor has prepared for versus suddenly realizing at the last moment that you have to drop your price.)
When you know your three (or more) exit strategies ahead of time, you can go into the deal with confidence that you’ll find a winning outcome at the end, and that factors which may have surprised you in the past will no longer surprise you or dramatically affect your bottom line.
Want a great first step to put this into action? Start amassing a list of exit strategies. Use the list above, create your own specifics (which may depend on the kind of deals you do) and build those into your due diligence spreadsheet.