There are some things that every investor needs. An exit strategy is certainly on the list. An exit strategy isn’t necessarily for when you want out of the investment business altogether. While this can happen, it’s more about having an exit strategy for individual properties.
What’s important to remember is that while the term “exit strategy” sounds intimidating — or like a failure — it doesn’t have to be. An exit strategy for you, as a turnkey buy-and-hold investor, may just be holding that property forever.
What matters is not knowing how to “get out” of an investment. Rather, an exit strategy should be about setting standards for what you want out of your investments and what you plan to do with them in the future. Every portfolio needs tweaking over time — you may have started in a single market and want to create a more balanced portfolio. Maybe you are experiencing a “problem property” and feel you would do better with another. Perhaps you started investing solo but want to move exclusively to turnkey investments.
What exit strategies accomplish is allowing you to better evaluate your risk tolerance, investment expectations, and sense for investing.
For turnkey investors, exit strategies may not seem important, but they are. With that said, here are some viable exit strategies that turnkey real estate investors can consider.
4 Primary Exit Strategies for Turnkey Investors
When evaluating your exit strategy, you must do so within the full context of your investment portfolio. These changes don’t happen in a vacuum. For this reason, it’s important to consult your advisor on the best course of action regarding rental properties that you own.
Keep Holding On
Perhaps the simplest strategy is also the default for turnkey investors. We buy-and-hold, after all. If your property is generating income, why do anything but stay the course? This is especially true once you’ve paid off the mortgage. At that point, your cash flow is pure profit! Remember: an exit strategy doesn’t necessarily mean jumping ship. It is the options and potential directions you visit to facilitate overall portfolio health. If a property is helping you grow, you don’t need to do a thing with it.
Check out: The Real Advantages of Buy and Hold Investing!
Initiate a 1031 Exchange
A 1031 Exchange is an ideal way to switch up your portfolio without getting out of the investment game. We’ve helped facilitate and guide plenty of investors through the process in our time! In very simple terms, you can trade one like-kind property for another (or several, depending) while also reaping the benefit of deferred capital gains taxes.
You can read more about 1031 Exchanges here and here.
There is a lot of nuance to a 1031 Exchange — knowing all of the rules and regulations is critical. This can be a powerful tool for investors to utilize, however, so don’t make the mistake of writing it off because it seems difficult or intimidating.
That’s what we’re here for!
Sell It
Perhaps the most immediately obvious exit strategy is to sell. This isn’t really something you want to do unless your property is generating negative cash flow, and usually over a prolonged period. A bad month isn’t cause to jump ship.
That said, you have several options when looking to sell a turnkey investment property: you can sell it back to your turnkey provider. While the payout is usually less than it would be if selling to a homebuyer or other investor, the key is that it’s usually a quick transaction.
Of course, you can also sell to individuals or other investors as well. Be sure to talk with your turnkey provider about your options when you are considering the sale of a property.
Look to Refinance
Refinancing is an option that allows you to hold on to your investment property while generating cash for other investments. When you refinance, you can potentially lower interest rates, shorten lease terms, lower your monthly payment, or reduce long-term costs by paying your mortgage off faster.
Ultimately, refinancing can help investors liquidate equity. The key is to refinance at the right time and under the right terms. This, again, is when it’s best to consult your turnkey adviser.
As a turnkey investor, your exit strategies are best discussed with your adviser. They can help you plan for your best financial future!
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