Thinking about buying a multifamily property?

Excellent!

Before you sign any paperwork, you first need to decide on your exit strategy.  – Tweet  

Yes, the end is what you look at first… because that’s how you will earn your money. I’ll get to that in a minute.

For right now, I will go over four exit strategies you should consider. That’s what this really quick video covers:

 

So, what is an exit strategy and what are your options?

Have you ever heard that you make your money in real estate when you make your purchase?  – Tweet  

It’s true.

This may sound strange, but what this statement really means is that you will know how much money you can earn in a deal when you look at the end game… when you no longer own the property. (Because you have sold the property and have thus earned your profit.)

In my multifamily properties, there are four exit strategies I consistently use:

1.- Buy and hold

You buy a property with the intention to hold onto it over the long term. This could mean 10, 20, 30 or even 40 years! This is the exit strategy I use most often. I intend to hold onto the properties that I have in my portfolio and maintain them until the day I sell them. I’ll keep making improvements so they will appreciate in value. Twenty years from now, my $100,000 property could be worth five times the price I paid!

2.- Retail-Resell

You buy a property at a lower-than-retail price (a.k.a., off market) with the intent to resell the property at full retail price (a.k.a., the top rate in that market). Some investors use a lease purchase option strategy to get this done. That’s where you can rent to own for a period of time before you own it… or, better yet, you can offer a lease purchase option to others so you earn a good amount of money until you can actually sell the property. In the latter scenario, you will earn way more money than if the buyer traditionally finances. Plus, if the buyer can’t keep up on the rent, you retain ownership. Then you can start another lease purchase option with someone new.  This includes a non-refundable deposit or they have to agree to lease the property without being allowed to purchase the property for a period of 3 to 5 years. They agree to this arrangement because the individuals you are leasing the property to typically cannot secure traditional financing. You are their “bank.”  Having them prove they can pay the lease amount over a term of 3 to 5 years also helps them decide if they can actually afford the property. In that time they can repair their credit, too. When they are allowed to purchase the property, they likely can use traditional funding.

3.- Fix-n-Flip

This strategy is the one most people understand, maybe due to the vast number of TV shows dedicated to flipping. I’ll give you a brief explanation anyway. Let’s say you find a multifamily property that isn’t doing well. It needs some repairs. You can buy the property (you don’t even have to use your own cash or credit), fix it up, bring it up to code, make it nicer and then sell it for way more than what you paid. A lot of people use this strategy to build income so they can move into larger and larger deals. This strategy is great for building your investing nest egg, but it will take you a couple of years… and those will be very busy years.

4.- Wholesale

In this short-turnaround strategy, you are buying a property at far below market value to immediately turn around to sell it at a much higher price. As the wholesaler you are putting the seller and buyer together; your fee comes from being the person in the middle, because you are providing a valuable service. You are using none of your own money in the deal. You are not a broker; you are simply putting a property under contract so only you have the right to find the buyer and then assign the contract to that person. It is a direct seller-to-buyer strategy, but because your network is expansive and the sellers and buyers don’t have that network, you get to put the people together to get the deal done. People will want to work with you because you will find the properties at far under market value and then sell them for under market… giving the seller a hassle-free experience that doesn’t involve a broker or agent, and you are giving buyer a savings that he/she can’t find on his/her own.

 

Now that you understand the importance of choosing an exit strategy even before you purchase a property and certainly at the time of purchase, I have a question for you…

Which exit strategy do you think would work best for you and why?

Let me know in the comments under my video or just contact me with your answer here:

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