Building an Investment Exit Strategy

Apartment real estate can be lucrative, offering high returns and a steady stream of income. But like with any other type of investment, there are risks. Even for buy-and-hold investors, it still pays to have an exit strategy. Ideally, you should have multiple exit strategies to cover different situations.

Here are some of the many strategies available to multifamily real estate investors.

Cash-Out Refinance

Investors who don’t want to make a hard exit from a multifamily property might consider cash-out refinancing. This is different from regular refinancing in that it allows you to borrow more than your current mortgage. At closing, you walk away with the excess cash.

That cash can be used to reinvest in a new project and expand your multifamily property portfolio. 

Again, this isn’t a hard exit strategy, but it can help you recoup some cash.

Sell the Property

What’s the simplest exist strategy in real estate investing? Selling the property for cash. Depending on when you invested and the current state of the market, this is an exit strategy that can yield high returns.

Investors typically make this move after enhancing or improving the property. 

Some investors can use a 1031 exchange to reinvest, which defers capital gains taxes. 

Seller Financing

Also known as owner financing, this is a strategy in which you, the seller, provide financing for the property. Essentially, you serve as the mortgage provider and will hold the loan on the property.

The purchasing process is still the same. The buyer will need to make a down payment, and installment payments will be made until the balance is fully paid.

This type of exit strategy is really ideal for buyer’s markets where supply outweighs demand. Seller financing can attract more potential buyers.

There are a few advantages to going this route. Both parties will save money on closing costs. You can also negotiate favorable terms and rates. The rules are more relaxed, and there’s less red tape to go through with this type of arrangement.

While this can be a successful exit strategy, it’s not without risk. There’s a chance that the borrower will default. Also, even though the arrangement is legally bound, the property will belong to you until the seller pays off the debt.

Success and Estate Planning

Some investors don’t really want to exit their investment, but rather, pass it on to someone else. For buy-and-hold investors who want to leave behind a legacy, succession and estate planning is an important exit strategy.

Estate planning allows the investor to leave real estate investments to their heirs, even if they operate the investment with partners.

It’s important to talk to your heirs about your plans to make sure that they want to carry on with the management of the property. This exit strategy could go wrong if your heirs do not wish to continue with the operation of your multifamily properties. In this case, you can create an exit strategy for your estate plan that would allow your heirs to sell business interests and liquidate assets.

Exit strategies are important for all investors, especially those with multifamily properties. Contact us at ovaliacapital.com to schedule an introductory call and learn more about our investing opportunities.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>