In this article, I will share the seven best real estate exit strategies you can use as an investor to get out of that investment in a few years or months. Some exit options will take more than two years, like the property exchange, which has its own benefits, and with some, you can exit in a few months.
It’s up to you and your partner what option you choose according to your current situation and future goals. So what is this real estate exit strategy, and why is it so important for an investor?
What is a Real Estate Exit Strategy?
You want your money back right? Every investor wants their money back before they put a single penny in a property. They want to know how and when I will get my money back with the desired profit. A real estate exit strategy tells you how to do that.
You will get your money back by using one of these exit strategies you are about to know. A real estate exit helps you plan your investment accordingly and manage the money better.
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Seven Proven Real Estate Exit Strategies
Now, I will share those seven real estate exit strategies that most investors use to get out of that investment. But before you choose one, plan it well and know which real estate exit suits you better, as all these are not made for you.
1. Sell the Property and Get Out
One of the obvious ways to get out of any real estate investment is to sell it right away. But you don’t want to sell it for below market price. You want a good profit. Getting that will take some time. Don’t ever think you will sell the property within a month after you have purchased it. No, that is not going to happen.
Give it some time and find a good buyer for it. There is also a game of taxes, and you want to reduce it as much as possible. So don’t hurry while selling. Create a plan to manage the money property and get out of that investment.
2. Refinance It and Generate More Profit
Refinance means you are selling the equity of the house you have built over time by paying the mortgage. You will offer that to another investor with a few terms and conditions. He will buy that piece from you if he agrees, and you will get the money as profit with no or little capital gain taxes.
It is the secret of real estate investing. A sophisticated investor never sells his property directly but always refinances it. So he can take advantage of this amazing real estate refinancing.
Please Note: This refinancing process is hard to understand, and I am not an expert. Please discuss it with a qualified person and a professional real estate attorney before taking any action.
3. Generate Rental Income
Rental property investing is also called the No Exit strategy. Here you will purchase a property and then hold it for years to earn monthly income from tenants.
But the property management problems are there that most investors want to avoid. But you can always hire a property manager to do the work for you. Like in the middle of the night solving a water leakage or an electrical repair. You can hire them.
Rental property investing is one of the best ways to build wealth for generations to come. You invest, and that asset will crate money every month. The ultimate investors have more than 1,000 rental properties that generate millions per year as net profit. It is one of the best real estate exit strategies that you can use.
4. Buy and Hold It for Years
There are few markets where rental properties do not work, nor do other real estate exits. There only buy and hold and then sell strategy work. You buy it, hold it for two or more years, and then sell it for a profit. In that market, you can only use this exit strategy. But you might not need it in normal circumstances.
5. Do a 1031 Exchange
The 1031 Exchange is a tax code for deferring the capital gain tax by reinvesting the whole amount in another property. Here the IRS rules are strict. You must follow the rules properly to get qualified for this tax exchange.
It is used only to save the property capital gain taxes. For example, if you are selling a 10 million dollar property with a profit of 1 million and you do not apply for this, then you have to give more than $200,000 as taxes. By using this, you can save all that and use that money to buy a new property.
But finding and acquiring an exchange property is challenging. Some exchange companies can help you use this tax code easily. Those companies will guide you through the entire process. They will help you determine if a 1031 Exchange is right and how to find, select, and purchase a great property.
6. Fix and Flip It
Fix and flip is not a real estate exit strategy, but if you are going for the BRRRR method, you might need it as your primary option is to sell it after you have fixed it.
It is when you buy an undervalued property, rehab it and make it like new, and then sell it for a higher price than the original investment costs. This fix-and-flip strategy is a popular option for those who don’t mind the challenge of those rehabbing problems.
7. Wholesale The House
The last option is to wholesale the house. Wholesaling real estate means selling the entire property to another investor at a higher price. In this exit strategy, you act as the middle person, saving investors time and energy by quickly generating high-profit margins on property deals.
It is done via two different methods. The first one is to close the deal and immediately sell it to another investor, and the second is to assign your purchase to another buyer before closing the contract. Wholesaling houses is a good way to exit the investment.
So these are the best real estate exit strategies that you can use to get out of that investment with a tax bonus if you know how to use those methods properly. Before you use any legal exits, related to tax, please consult with a tax expert. You will be safe. Thank you for reading.