Some new real estate investment students are surprised to learn that there are multiple ways to profit from any individual real estate investment.
These various ways of generating income from investment properties are called exit strategies.
The good news is that there are several real estate investment exit strategies that may suit you based on your unique situation.
Whether you are looking to invest in your very first property for quick profit, long-term cash flow or maximum appreciation, you can be successful in real estate investing. The most important key to success in this choosing the strategy that complements where you are, your available resources, and your experience level.
In this article, we will look at some of the pros and cons of a handful of top real estate investment exit strategies. Will
Retailing – Fix and Flips
This is one of the very top and most popular exit strategies of real estate investment properties.
With this strategy, you will buy a property at a deeply discounted price and sell it for a much higher price. That’s right, the buy low, sell high method of investing.
Popularized by exciting, even addictive, reality TV shows, there’s just something we love about finding, rehabbing and selling property this for multiple five-figure profits. The idea that within a 1 to 2 month period of time an everyday individual can generate enough profit to live on what some people make in a year is captivating.
You need to have special talents, Hollywood beauty, family wealth or an Einstein IQ to make serious money fixing and flipping properties.
Let’s take a closer at the pros and cons of retailing real estate investment properties.
Pros:
High profit potential and ROI – There are not many job options that allow an individual to generate the kind of profits you can make fixing and flipping properties in the same amount of time. According to a recent report written by Sentier Research, the median United States household income was $62,175 in June 2018. https://seekingalpha.com/article/4193310-june-2018-median-household-income
So, if you two just to deals netting $30,000 in profit per deal, which can be time in 3 to 5 hearts on a semi-part-time basis, you have just made a respectable income by U.S. standards.
Gain valuable experience – There is also no denying the fact that buying and rehabbing a property teaches you the ins and outs of what it takes to increase value so you can make big bucks on deals. You will also learn your local market very well.
You will learn how to find deeply discounted deals that have solid ARV, you will learn how to work with contractors to complete all the renovations and you will learn how to sell a property for maximum profit.
These benefits are enough to fuel a strong percentage of real estate investment transactions that take place by investors.
Cons:
Higher taxes – This type of income is considered earned income so you pay more taxes and higher taxes. The profit you make when you sell is subject to capital gains taxes.
The rate you have to pay will depend on whether you own the property for under or over a 12-month period. This is a ‘pickle’ all on its own, because you save on taxes if you own the property for over 1 year but you save on other costs if you own it for under 1 year.
Qualified buyers – Since you’re selling the property you will need the buyer to get approved for a loan to buy the property from you, outright.
No residual income – Real estate investments can be compared to the age-old question of whether to slaughter the cow or milk cow. You stand to make a great deal of profit if you sell immediately, but you have to test against the benefits of holding the real estate investment long-term.
No appreciation – Appreciation is the way to building wealth. It’s the #1 way most people build wealth. You purchase an investment for $1 and over the next 30 years it goes up in value to $30. You miss this appreciation feature when you sell off the investment property.
High risk – With fix and flip deals the name of the game is not just buy low sell high, but also buy today and sell tonight. You want to sell the property spastics possible sale have to pay holding costs. This seals the deal on this particular real estate investment.
High time involved – Depending on how many renovations need to take place, and the quality of the contractors you work with, the rehab stage of your fix and flip deal can be time efficient or a time sucker.
Large amount of cash involved – It takes a lot of cash to fix and flip properties. You have to account for rehab costs across multiple categories of the property in you should account for unexpected costs as well. On a $100,000, you may allow $20-$30,000 in rehab costs depending on the condition of the property you’re flipping.
Greater expertise required – The fix and flip process requires more experience because of all the challenges you may face in the rehab process.
More headaches and stress – Rehabbing a property naturally brings more headaches because of dealing with, potentially, multiple contractors who are making improvements in multiple areas.
Some real estate investors may confess that the quality of contractors is probably the biggest factor to headaches experience on a rehab.
Wholesaling
Wholesaling properties is basically brokering deals between highly motivated sellers and real estate investors. These are usually the players in wholesale deals.
Pros:
Little time involved with – All you have to do is find the deal and get it under contract. Then you just need to transfer the deal over to an investor who agrees to take it and you’re done.
Little cash involved – You can usually get the property under contract for a hundred dollars or less.
Little risk involved – Since you’re not technically buying the property the only risk you have is the hundred dollars you used to get under contract.
Little experience required – You need much experience at all to get started wholesaling deals successfully. This is a great way for beginners to start making real estate investment deals.
High transaction capacity – since there’s not much involved in each deal, it’s easy to do multiple deals a month.
Low headaches factor – As long as you can find properties in your market, or virtually in any market around the country or internationally, and find investors who would take those deals, your work is stress-free.
Great monthly income – Real estate investment wholesalers usually make anywhere from $3000-$10,000 per transaction.
Cons:
Smaller profit potential – Since you’re wholesaling the deal, you are actually leaving the bulk of the profit on the table for the investor who will take over your deal.
Advanced deal finding system needed – If you Want to generate multiple six figures a year as a wholesaler, you will need to put a system in place for attracting deeply discounted deals.
Rentals (Landlording)
If you are renting your house out, which is traditional renting, then you are also landlording.
Pros:
Appreciation – One of the top benefits of landlording is the appreciation and equity you gain. Investing $10,000 on year one and watching the property grow in value, along with your investment, the year 20 is beautiful. By this time your investment may be worth $50,000 or more.
Cash flow – not only do you benefit from appreciation but you also gain monthly positive cash flow. If you have enough properties bringing in monthly positive cash flow to cover your living expenses, you can technically retire.
Tax advantages – you pay much lower taxes when you buy and hold the property for long period of time.
Great retirement plan – Positive monthly cash flow and realizing the appreciation you earn on real estate investment properties is a great retirement plan.
Cons:
Property management – The reality is property you buy today is not going to look the same 20 years from today this you take very good care of it.
Managing tenants – Depending on the quality of tenants you with, some landlords have massive headaches.
Still, there is a way to enjoy all the wealth-building benefits of landlording while minimizing the headaches of it.
Hiring the best property management company in Westminster, MD, or your local market.
Property management companies can deal with all the headaches that cause stress to investors.
Lease Option
There is another option that provides some of the benefits of retailing a property as well as renting the property, combined. This exit strategy of real estate investment properties is called lease options.
With this option, the buyer is technically a “tenant/buyer.” Since they are renting the property with the hope of owning it, many people are self-motivated to take very good care of the property.
You can make good money in front, the form of town payments. You can make high average month as it is income. You can also sell the property to generate will try the profits you make with retailing a real estate investment.
Conclusion
It’s important to match your exit strategy with your resources of time, money, experience and comfort.
With multiple ways to win with real estate investing, there’s no reason why you shouldn’t start today.
Let the experts help you.
Contact Utz Property Management for help with crafting a personalized game-plan to building your real estate empire. We help investors grow their real estate portfolios without the headaches and stress of landlording!
Through Utz Real Estate, we can help you buy and sell investment properties in the greater Westminster, Maryland area.
Through Utz Handyman & Remodeling, we can help you with all your renovation needs.
