What is meant by the term “property exit strategy?” Well, that partly depends on who you talk to but generally a good way to think of it is the different things you can potentially do with the property. The obvious ones are to sell it on straight away or rent out.
Having more than one property exit strategy is a key to property investing. One reason many novice property investors get themselves into difficulty is that they didn’t have enough exit strategies when they bought the property in the first place, and the strategy they took, or that was open to them, wasn’t the right one or wasn’t profitable.
YOU MUST HAVE AT LEAST TWO EXIT STRATEGIES WHENEVER YOU BUY A PROPERTY
This is a golden rule. If you have just one property exit strategy the risk element is too high. To give you an idea of what we mean, take a look at the hypothetical scenario below. (example taken from the book UK Property Success )
Jake is a property investor. He is looking at buying a two-bedroom terrace house in Birmingham. Because he has inquired with various letting agents in the area and has also put an advert in a local newspaper saying he is looking for tenants and the response has been very high, Jake knows the area he is looking to invest in has very high rental potential,
He knows that 60% of the people that rent in the specific area he is looking at work at a local factory. He goes ahead and buys the property, but just before completion it is announced that the factory is about to close.
All of a sudden most of Jake’s potential rental clients have money problems and moving into his rented accommodation is the last thing on their minds. They’re more worried about where the next meal is going to come from and they decide to stay where they are.
Jake is suddenly stuck with a property that he can’t rent out and that is costing him money each month on paying the mortgage. It is also not in a very nice area so no one wants to buy it.
If Jake had been following the rule of having more than one property exit strategy he would not have found himself in this situation, because he probably wouldn’t have bought the property in the first place since the possibility of selling it in that area was not good.
Now, in real life 60% of the renters working at the same factory might seem like a high figure and it is for most parts of the UK, but this is just and example to make a point.
You might also think that the chances of a factory closing down in a local area in the past has been remote, but more and more these days you are hearing on the news and through the media that factories are closing and the effects this is having on local communities is devastating.
Also in real life you might be thinking, ‘Oh no, but I am missing out on an amazing deal as the rental market was strong.’ One of the most important rules in property investing or developing is this:
NEVER BE AFRAID TO WALK AWAY FROM A DEAL
Even if it seems like the deal of the century when you first start to look at it – if, after closer scrutiny, things aren’t adding up and things just don’t seem right – walk away before you invest any money. As a beginner if you do not have more than one property exit strategy in place, then you are leaving yourself at risk.
There is always another deal of the century on the horizon: there are lots of deals out there. You just have to keep your eyes open and know how to get your hands on them. But that is why this blog is here, to help you find out how to do just that.
More experienced investors might do the odd deal with just one property exit strategy in place, but they can afford to take more risks than the beginner. For example, there are investors that concentrate on buying property in areas where no one else wants to buy because they are deprived areas with drug and other issues.
They take the risk and know that, even though there is not much hope of resale in the near future, this investment has potential. Since it is a deprived arrear, most people – even other investors stay away from it, and they can pick up the property cheaply and rent it out through the council or a housing association.
Perhaps in time the area will undergo some regeneration and improve; then the chance of selling greatly increases, as does the chance of getting a higher rent-paying tenant. These investors are willing to wait as long as the rent covers the mortgage. However, this is not a strategy I would recommend to the novice investor. It is not a strategy for the faint- hearted and is perhaps more high risk than you need to take at the beginning of your property investing adventure.
If you are just starting out on your road to financial freedom through property, then don’t forget the GOLDEN RULE. You must have more than one, property exit strategy.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.