Real Estate exit strategy?

[Serge S.]

I've been thinking about this a lot lately. How do you ultimately exit RE as a buy and hold investor? The most common things you hear people say is that they plan to hold forever and pass along their homes to children/spouse. Others say they will continue to 1031 and ultimately end with a nice stable large multifamily investment that sends them checks in the mail.

My problem is that I've been around long enough to know that both of these are bad strategies. By the time you will pass along your homes to your kids they will be functionally obsolescent junk in most cases. What are the odds your kids will have any interest in managing those homes not to mention the competence to do so? 

The 1031 to a large multifamily strategy is even more laughable. Again, by the time you pass, this multifamily will be a C class liability waiting for the wrong property manager to destroy it. Your heirs will be the sellers of a distressed asset that @Ben Leybovich and @Brian Burke will buy for pennies on the dollar. My last large multifamily investment was purchased from a women in just this situation. Her father would have been much more wise to sell the complex well before his death instead of leaving it for his daughter to ruin.

So ... whats left? Do you play the cycles? Buy when the fundamentals support it and sell when they don't? Or do you sell at the top of the cycle and then move into a different asset class or focus on transactions (flips, commissions, etc)?

Thoughts??

[Brian Burke]

I've said it many times that real estate investing is like a meandering stream in a meadow.  If you are rowing downstream, you'd better learn how to turn left and right because if you can only row in a straight line you are certain to run aground.

I'll exit RE someday, but I'll probably be very old or dead.  I have no kids so if someone has to clean up a mess of properties that sell for pennies on the dollar I won't care by then.  Some young BP'ers will be thrilled to pick up the pieces.

Seriously though, you need to expand your thinking, Serge.  You can't plan a linear path to an end game, you have to stay alert to the signals and adjust on the fly.  Say that your game is to 1031 up to multifamily.  There's nothing wrong with this strategy.  What is important is that you don't just "set it and forget it".  Do it right.  Buy right, improve operations, ride it for a while.  Don't keep the property forever, get out at some point (when the market is good but not white hot) and 1031 into another, newer property.  If you keep exchanging into newer deals, you'll maintain the youth of your portfolio as you sell your older deals to younger buyers with more energy. 

So what's left?  For me I'll do all three things that you mentioned.  I'll play the cycles, buy low, sell high, then switch asset classes because they tend to cycle out of phase to one another.  And I'll focus on transactions (flips). 

There's a third option...sell everything and put the cash in the bank and wait.  But wait for what?  And do what in the mean time?  And what if "it" never happens?  Sure, that'll work for some, but not me, not now.  Maybe someday in the distant future.