101 Sub2 Exit Strategies

This post is in response to a thread here on BP titled: Refinancing a Subject2 Purchase

James Harkness later asked a question in that thread, "what exit strategy do you recommend when purchasing subject 2? What has the best returns, and what have you had the most success with?"

Now, of course there may not be exactly 101 exit strategies and surely I won't be able to cover all of them because really, there are so many ways to execute an exit strategy with Sub2's that it truly boggles my mind every time I think about it. 

So what are some of the top ways to execute an exit strategy?

• Wholesale it
• Sell it retail
• place a tenant/buyer
• Wrap it

Lets briefly go over some of these. Again, you could do so much but I only wanted to cover a few of them to keep this post short and sweet. 

Wholesale it:

This could be done a few different ways. First, you could actually just 'Assign' the contract like a standard wholesale to an end buyer. This buyer could be an investor or a retail buyer who simply pays you an assignment fee and they'll take it over Sub2. Those who do Lease/Options would relate to this as a Co-Op. Same idea, different name. 

Sell it Retail:

This would actually be a little different than just assigning it to a retail buyer who takes over. This would include you actually purchasing it Sub2 and then selling it like a normal transaction where the end buyer actually comes in with their own financing and pays off the existing loans. Exactly like a standard transaction, however, you're the seller and the existing loan is getting paid off and the excess funds are going to you instead of the previous owner. 

Place a Tenant/Buyer:

This handy dandy strategy is more for if you plan on keeping it longer than the previous two options. The length of time depends on you. You could 'Owner Finance' it prolonging the purchase. You could do a Lease/Option and either be pro-active in making sure the tenant/buyer actually purchases it or do what most do and actually do nothing and hope the tenant/buyer never exercises so you can continue to collect 'Option' monies from new tenants. There are many different names for these including, Rent to Own, Lease/Option, Lease/Purchase, Contract for Deed etc.... They all basically mean the same thing which is, The 'Buyer' doesn't actually 'Own' or have the deed to the property until they execute their end of whatever contract their in.  It's a great strategy as is the previous ones.

Wrap it:

A wrap is really nothing more than a seller creating an additional note/lien on the property. When the buyer pays the 'mortgage' payment, typically it goes to the Wrap(er) and they take out their cut and send the rest to the existing lender, other times it would go to a servicing company where they distribute the payment. So in this instance in using it as an exit strategy you would simply sell the property as wrap, create and record an additional lien which would be a 2nd position lien, create the note with the terms and you will receive the payments which will now obviously be much higher than your/original sellers existing note and you'll just collect the spread. This a great way to earn high interest rates. 

So back to the original question. As with most answers in Real Estate Investing 'It Depends'. 

It depends on the situation in which I'm buying it. If I'm buying a Sub2 without much equity, I'm going to do a Lease/Option and build in some inflated equity or 'assign' it to a retail buyer or even create a wrappy dappy on it. 

If there is a lot of equity, I'll probably purchase it and resell it retail to collect a large lump sum, maybe wrappy dappy it but less likely if I can hold it for a few months while finding a retail buyer for a phatty mcfatty check.

If it needs a lot of work or more than I'm willing to do because I'm lazy and there is some obvious money to be made, I'll probably assign it to a rehabber or landlord etc.....

As far as which one has the best returns, obviously no one can answer that but I'll tell you what my favorite exit strategy is, Lease/Options. It may be different to you for different reasons however, I enjoy Lease/Options as a selling strategy personally. 

I hope that helps.