What type of exit strategy for 1st time buyer, buy & hold?

Question

Hello everyone.

I am hoping to soon purchase my first property.
It will most likely be a buy and hold.

I keep reading about 'knowing your exit strategies' but to be honest, I have no idea how to plan for this.

Basically, the only reason I can imagine needing to exit is if it starts bleeding money. But at that point, what is there to do?

Anybody want to share their experience with exit strategies and why you had to implement them?

Any help appreciated.

thanks

Account Closed · Answer

I see several issues here.  First buy and hold investors are not created equal.

1)  There those that want to hold there real estate to the very end and perhaps transfer to future generations.

2)  There those that want to hold for a long period, but do plan to exit at some point.

3)  There are those that want to combine these strategies.

Another issue - regards management of buy and hold investments.  Some self manage and are quite active in dealing with there investments. Many others have delegated management to property managers.

Exit strategies need to take these all into consideration.

As an investor that actively manages my properties.  I know that as I get older, I will transfer more of the management to others.  I also will not hold onto every property long term some will get exchanged (1031), some might be sold outright when it makes sense.

The intent is to have a good income stream that insures that my wife and I are will provided for in retirement.

For many buy and hold investors, it becomes necessary to consider estate planning.  The last thing you want is to have your beneficiaries lose all or most of what you had to the government, lawyers or possibly infighting.

Jon Klaus · Answer

I am am a buy and holder, too.  If for some reason I want to or need to exit, I'll sell.  There are different ways to sell, but it boils down to what price do I have to ask to get a buyer. So most simplistically, my first exit option is not to exit. My second option is to sell close to retail. My third option is to sell for a price that will guarantee it moves.

Jonathan H. · Answer

Thanks for the replies everyone.

Its funny because sometimes I read these posts that say things like: "Oh man...I couldnt sell so now Im renting it and Im getting $700 monthly for it..."

Then, I think to myself: "I wish I had your problems!"

Now I understand better. It seems like 'exit strategies' are really for those who do not intend to hold long term.

For myself, to begin, I will be holding long-term.

thanks again everyone.

Mitch Kronowit · Answer

Our grand master plan is to 1031 exchange two of our rental properties into a pair of retirement homes. After renting those for about a year, boot the tenants and move in ourselves.

Our other properties we intend to simply hold on to or 1031 exchange into better paying properties and enjoy the income during retirement. Unless we really need the cash, I don't see a reason to liquidate and share our hard-earned profits with Uncle Sam.

Everything will ultimately be "owned" by our trust, so it will pass down to our daughter which we hope to educate about the benefits of real estate investing. May her life be easier than ours.

Jeff S. · Answer

Jonathan,

Lately I have given this more thought long-term. They say many people don't choose when to retire. Having long-term real estate is a safety net for unexpected financial happenings. I guess I will sell my core holdings when I run out of money, when I am old.

Some properties are keepers that seem to take care of themselves attracting great tenants. These are my core properties. Others either turn bad after time or just never seem to go well. These are the ones I have sold. I don't have time or patience for ongoing problems.

Starting, I had never intended to sell, but market conditions can change and newer purchases can be more difficult. Vacancies with mortgages can be hard. Sometimes scaling back becomes more fun.

Robert Granara · Answer

Jonathan,

A lot of investors, myself included use hard money to finance deals...When I hear of exit strategies I think of getting out of hard money...when you use hard money you need to make sure you have multiple "exit strageies" so that you have many options to get out of the higher interest rate loans associated with hard money loans...these are the 2 exit strategies I use:

1)buy, rehab and sell
2)buy, rehab ,rent, refinance and hold

Will Barnard · Answer

I agree with what has been stated above.
To add, "know your exit strategies" usually refers to a strategy of flipping and not buy and hold. Even a buy and hold could be considered an exit strategy for a flip.

Bryan Hancock · Answer

Jon covered the key points.  You can also sell on contract, via a wrap note, using a note if you own free and clear, etc.

I think the purest form of buy-and-hold investors generally intend to hold the property indefinitely to produce cash to supplement or replace their income.

What type of exit strategy for 1st time buyer, buy & hold?

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