Before you ever think of buying a property for an investment you should know what your exist strategies are. If your plan is to wholesale real estate, then know who you are going to wholesale to. If you are going to fix and flip or rent then you should know that going in. So the first question you need to ask yourself is…”What are the exit strategies?”
Here is a list of the five most popular exit strategies with a brief description of what each is….
Buy, Fix and Flip
This is what you see on HGTV and pretty much everyone understands what goes on here. Your intent is to buy a junky house or any house you can get at significant discount. Then renovate it and resell for an amount greater then your expenses (purchase price, holding costs, rehab costs and anything else you payed out of pocket for). With this strategy it is critical to stick to a budget and never “over rehab” the property because you won’t get your money back. There is no need to use granit counter tops in a laminate neighborhood. Fix and Flipping can be one of the most profitable avenues to go, but you must know what you are doing and be able to handle all the struggles along the way. Contractors, local regulations, natural disasters or whatever…just know this and be prepared.
The idea behind Lease Optioning is one of deferred rewards. You put off the final sale of the house in exchange for a higher selling price. This is made up of two parts, the first of which is a lease or rental agreement. Make sure this lease is a “triple net lease” (NNN) so the lessee is responsible for paying the taxes, insurance maintenance and upkeep of the property. The second contract is the purchase contract which stats at a date in the future the buyer (person leasing the house) will have the option to buy for a price. You can also agree that part of each lease payment will go towards the downpayment of the house as well.
Buy & Flip to Owner Occupants
Selling these properties to another investor is called wholesaling, but if your strategy is selling to owner occupants you’d call this a handyman special. The reason why I separated this out from wholesaling is that you can make a little more money selling to an owner occupant because they are looking to live in the house. These homes can’t be recks, they usually only need carpet, paint and minor repairs as the handyman who buys it to live in is not going to want to replace major systems.
Sometimes called a quick flip, this strategy is a must in your tool bag. You will make the least amount of money (between $1000 and $20000), but the risk is minimal. The reason why the risk is so low is that you usually have a buyer lined up before you purchase the property. This allows you to know how much you can buy the property for and make some money. You’ll then either assign the contract, double close or simultaneous close to get your money.
You want to add to your rental portfolio for the purposes of getting some passive income. This is a great strategy and one you should consider. That is of course you don’t mind dealing with tenants. Nothing builds wealth like passive income. Buying a rental property like any other investment is keyed on your purchase price. If you don’t buy it right, then you’ll just be throwing money away month after month cover the expenses because you can’t rent the unit out for enough money. It’s beyond the scope of this article, but usually the rent should be twice as much as your mortgage payment or you’ve got yourself a loser.
Hope this helps…
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