For the buy and hold strategy, I believe most real estate investors have the goal of eventually selling the property for top dollar.
In order to accomplish this you must buy a property that can be sold to an end user who will pay retail pricing. This means as an investor your exit strategy must be set up in the beginning at the purchase.
Every investor has different objectives and therefore different exit strategies to consider. You must consider an exit strategy at the time of purchase if you want to be a purposeful investor with a predefined end game. I see investors miss this important step all the time. All too often people buy a property and hope and pray they make money. Remember the two famous quotes that “people do not plan to fail, they simply fail to plan” and the second one that “hope is not a strategy.”
Here are 5 considerations to accomplish this exit strategy and it all starts at the time of purchase:
- Invest in a property that will sell for a retail price: Commercial and multifamily properties are typically bought by sophisticated investors looking for high returns, so perhaps you may want to consider a residential single family property that will sell retail.
- Buy the most liquid real estate available. The three-bedroom, two-bath, and two-car garage home is by far the most highly sought after piece of real estate. First time homebuyers, empty nesters, and every buying category in between become your buying audience with this type of property.
- Remember: retail buyers buy in nice working class areas. Cheap properties typically are located with lots of other rentals with large numbers of tenants in areas of older homes. These typically require more maintenance and repair and will likely struggle to bring in retail pricing.
- Look for the value play: The worst homes in the best neighborhoods rehab and build the equity.
- Secure great tenants: To get great tenants who pay top rents requires nice homes in areas where they feel safe. These tenants typically stay longer as well and reduce tenant turnover and maintenance costs.
I recommend you write down your objectives for the holding time as well as the exit strategy and share them with everyone on your real estate power team, including your attorney, Realtor, service people, property manager and others. You will be surprised by the synergy when you engage your whole team and let them know your strategy and goals.
Every investment class will have its own exit strategy considerations. When being purposeful up front and with the combined synergy of your entire real estate team working toward the common goal you will see big dividends.
Happy investing.
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