Exit Strategies for Real Estate Investors: Maximizing Profits and Minimizing Losses

Investing in real estate is an exciting venture. It comes with many opportunities to make a profit — if you can overcome the challenges that arise. Expensive surprises often occur while you own a property, which is why it’s important to do your due diligence before making a purchase. 

Even seasoned real estate professionals encounter unexpected expenses. What’s important is learning to minimize them as much as possible, so when you plan an exit strategy, you’ll collect maximum profit. 

An exit strategy is when an investor liquidates a financial asset. This can include the sale of a property, business or shares when a company launches an initial public offering. Below are some common exit strategies for real estate investors. 

READ: The Pros and Cons of Investing in Real Estate During a Recession

House flipping

With house flipping, you purchase a house, renovate it, and sell it for a profit. If you plan on using this strategy, it’s important to think beyond cosmetic improvements, such as replacing light fixtures. The renovations need to align with the layout and functionalities that modern buyers want.

Buyers love purchasing houses that are updated and move-in ready, but investors should know that house flipping renovations can come with a high price tag. However, they’re worth it if they offer a solid return on investment. Make sure to have a financial cushion in case you need to make more extensive renovations than you expected.

READ: Mastering Residential Real Estate Flipping — 10 Essential Keys for Success

Wholesaling

Wholesaling is a real estate strategy where you, as the investor, act as a middleman. With wholesaling, you purchase a house but already have a buyer lined up to purchase the house from you. 

To maximize profit, find a seller who is motivated to sell their property quickly and doesn’t want to waste time with lengthy negotiations. Then, find a buyer who will purchase it from you for market value or above market value.

Buy, Hold, Rent

Flipping houses and wholesaling can create short-term profit. However, many real estate investors focus on long-term profit by buying, holding and renting property. With this strategy, you can rent your properties at a monthly price that covers your mortgage payment and other expenses.

Depending on the market, you’ll likely experience positive cash flow and increased equity over time. When you’re ready, you can choose to sell your rental property — whether that’s five, 10 or even 30 years later.

Although you’ll be responsible for the maintenance of your properties, this is a good way to have someone else pay your mortgage over time. The key is to carefully vet your renters to ensure they take care of your investment while they live there.

How to maximize profit during an exit

Regardless of which exit strategy you choose, here are a few tips to maximize profit when planning an exit.

Time your exit carefully:

Timing is everything in real estate. The market goes through cycles. Sometimes it’s a seller’s market, and other times it’s a buyer’s market. 

Although no one can perfectly predict market peaks, there are economic indicators — such as interest rates, inflation rates, employment rates, and vacancy rates — that can help you determine the ideal time to sell. For example, when interest rates go down, the demand for housing goes up — meaning there will likely be plenty of buyers willing to pay top dollar for your property. 

Monitoring these indicators can help you time your exit to maximize profit. Make sure to watch the news and follow economic trends to determine the best time to sell. When the time is right, get multiple home value assessments so you’ll know how much profit you stand to make.

READ: Exploring The Economics of Housing Inflation in Colorado

Network with real estate professionals:

Having solid relationships with others in the real estate industry is a good way to learn about exit strategies you might not have considered yet. 

Network with bankers, real estate agents, real estate brokers, real estate attorneys, real estate wholesalers and other investors who might be more knowledgeable about laws and tax strategies that could help you exit your properties with more profit.

Real estate agents can give you valuable insights that will help you get a solid return on your investment. They can also recommend contractors who do good work, saving you time and money when repairing and renovating your properties. 

Plus, if you decide to get your own real estate license to save on commission rates, it’s possible a seasoned agent or broker you know will show you the ropes or even employ you.

Ultimately, having a solid network can help you strategically create an exit plan that will make your real estate investment profitable. No one can time the market or plan an exit perfectly, but there are many steps you can take as a real estate investor to mitigate risks and improve your chances of success.

Luke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and more.