Rental exit strategies?

Question

Hello BP my name is Carlos and I'm new to real estate and BP. My plan is to purchase a duplex or triplex and rent it out and gain positive cash flow, hopefully. I'm still on the hunt I've been listening to BP pod casts and simply learning, but theres one thing that sticks in my mind and I don't seem to have one is a exit strategy for renting duplex/ triplex. I mean my plan is to buy a property that needs "minor" repairs aka upgrades. New floors, cabinets, paint, doors, but nothing major such as foundation issues, plumbing, etc. With those upgrade done I would be able to collect a higher rent to new tenants and hopefully increasing the ARV.

So to me renting seems to be the only thing I could really do, and reselling it seems to be the only exit strategy available to me.. Are there any other exit strategies?

Also I would rent out any garages, parking spots, attic and basement for extra storage, sheds, laundry, etc.. Is there anything else you would do or come up with to increase cash flow?

Thank you for helping me and guiding me in advance.

Jeff Bridges · Answer

As an investor, you want to have multiple exit strategies to lower your risk and provide you with options should your situation change. In other words, you want to give yourself options, and that means buying the right home at the right price that allows you to sell easily at a profit when the time comes. For example, if you buy a property at 30% under market value; this allows you to withstand small market corrections and sell quickly to cover your original investment plus selling fees and hopefully have some profit as well. If you were to buy at 95% current market value, and that market goes down 10% X years after you purchase, and you have the need to free up the funds (moving to another town for example), you will not be able to do so without coming out of pocket the difference of the sale and the balance of your mortgage (underwater mortgage). This could put you in a difficult place. Yes you have your rental income, but you are forced to continue renting that property even if you wanted to purse another investment or cash out entirely. Don't think you just repaint and increase ARV or cashflow, you need to buy at a good value that is low enough to withstand market cycles (drops and other bumps in the road) so you can sell when YOU want to, not when your house stops being underwater. In my market, I'm only finding severely discounted properties that require 15-30k in rehab work, because no retail buyer wants those and I don't have to compete with them. But that's my niche and how I buy at the right price for my own criteria.

Here are other exit strategies: https://www.biggerpockets.com/real-estate-investing/exit-strategies

Account Closed · Answer

Carlos, think about who you are going to market the rental units to.  Let's pretend you are a tenant looking for a place to rent.  Are you going to want to deal with other people coming and going from the attic, basement, garage and parking spaces where you live?  I can't imagine finding any kind of tenant anyone would want to have - who would be okay with that.

This is a business that deals with people.  Rentals involve tenants, and tenants are people.  They are customers.  You need to figure out who your customers are, and why they would want to pay you for what you have to offer.

Now, who would your tenants be, who would be willing to live with people using the attic, garage, basement and parking spaces, where they live?

Probably not the same tenants who would meet decent criteria.  And what's your criteria?  Do you vet people who rent storage on the property where your tenants live?  How do you minimize your liability regarding your tenants, if some guy you rented storage space to starts a meth lab in the attic?

Just picture yourself in the shoes of a tenant looking for a place to live, and why they would choose your rental.

Any tenant okay with renting a space surrounded by storage units, is not likely to be a tenant I'd ever want to rent to.  Just sayin', you have to think through the fact that there are people involved here.  I think new RE investors tend to think of properties as ATM machines, and forget the human factor.