​Exit Strategies For Multifamily Real Estate Investors

Exit Strategies For Multifamily Real Estate Investors

How do multifamily real estate investors exit their investments?

While many multifamily investors are in this sector for a long term buy and hold investments, it always pays to have an exit. Having multiple exit strategies is always better. Here are just some of the options.

Sell the Building

The most obvious exit for multifamily property investors is just to sell the building for cash. This is typically after making value add improvements or enhancing performance (occupancy and NOI) through better property management. Though there are a fair amount of distressed sellers, who own properties with deferred maintenance issues, in some cases, the proceeds can be used to reinvest through a 1031 exchange to defer any capital gains taxes. As of April 2019, BisNow reports there is an estimated $338B in ‘dry powder’ capital waiting to be invested by bigger funds. That could provide some great exits over the next couple of years for value add investors who get in early.

Refinance & Recapitalize

An exit doesn’t have to mean a complete hard exit from the investment. It can just be recouping the cash put in while retaining the income stream and potential for future appreciation and tax breaks. After seasoning the performance on an apartment building, investors can refinance at better long term rates, release equity to reinvest in a new project and keep benefiting from a growing multifamily portfolio.

Bring in a New Capital Partner

Cashing out may also be achieved by bringing in a new capital partner who will add a new cash injection. For example, a bigger fund, who will provide dollars for more value add improvements or expanding the property up, down or outwards. This can also be achieved by taking the holding company public. Similar to what WeWork is attempting to do in the office space.

Seller Financing

Owner financing is pretty common in buying and selling multifamily apartments and other types of commercial real estate. By selling in this way, investors create a new paper asset in the mortgage loan, on a property they are already familiar with. This new asset can either be held for cash flow, sold for cash or a mixture of both.