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When we talk about creating an exit strategy we could actually be talking about a few different things. One could be a rat race exit strategy that we could touch on in another article. Basically that would be creating enough passive income from real estate or businesses to cover all of your expenses and then some. We are going to be discussing a different exit strategy the kind of exit strategy that you need to have in place before you ever make an offer or purchase a piece of income/investment property.

Buying a piece of real estate is easy. You look around for a “For Sale” sign and write up a contract and present it to the seller. Making money in real estate is something completely different. I don’t remember who said this or else I would give them credit for it but they said something to the effect that you make your money when you buy the property not when you sell it.

If you think about it…you make your money when you buy not when you sell. If you don’t purchase the property correctly you will never make money on the back end regardless if you are planning on keeping the property for a rental or if you are planning on turning around and wholesaling the property.

You need to figure out real quick when you are looking at a piece of property what it is good for. How much money needs to go into it for repairs, holding cost, maintenance, and/or closing costs. What would be the best use for the property; rental or sale? Some of you may be wondering how do I know, or how can I find out what would be the best use for the property? This is what separates the hobbyists from the professionals. This all comes down to property analysis which is an entire subject on its own.

Once you have done your property analysis and have determined what are all of the hard numbers associated with the property (again repairs, holding costs, closing costs, etc.) then you can determine what the best use of the property would be. Many times it is based on the market conditions and you need to keep in mind if it is a buyers or a seller’s market. If it is a buyer’s market you may want to consider holding onto that property until the market values increase to where you can make a substantial profit. Here is where you might want to consider doing a lease option. If it is a seller’s market then you can sell the property quickly and potentially make a nice profit right off of the bat.

You need to consider your long term strategy regardless of what the market is doing. If your long term strategy is to create cash flow then you will want to fix and hold onto the property. Your exit strategy would need to be purchase the property do the repairs and then refinance the property into long term financing. You should have the financing in place before you ever purchase that property and you need to know what the property will appraise for after repairs are completed so that you have all of the information in place to refinance the property quickly.

By having your exit strategy in place before you ever purchase the property then the easier and quicker your money turn over will be and the better returns you will make. You can even go as far as to have renter lined up to enter your property before you close on it so that you know once repairs are made you will immediately be making money. Just remember that your exit strategy is a critical step in becoming a true real estate professional.

So let’s recap the key points:

1. Decided what you long term goals are
   1. Long term month cash flow
   2. Great income off sale of each property
   3. Combo of both
2. Understand what your local market place is doing (buyers or sellers market)
3. Analyze the property
4. Get renters ready to move right in or put it up for sale as quickly as possible.