Why do you need an exit strategy for a fix and flip? The goal is to purchase a distressed, undervalued property, make the repairs on par with comparables, sell it quickly, pay off the loan, and make a profit. Right? But what if things don’t go as expected? Having a plan B can help you quickly decide to cut your losses. A good exit strategy will depend on how quickly you need to get your money out, your expected return, and your financing and holding costs.
Short-term Strategies
Lower your price
Typically investors use the 70% rule to ensure a reasonable profit—knowing where your bottom line is your wiggle room for price negotiation. If you are selling your property for $450k and have projected a $110k profit, depending on your circumstances, you can create more time by lowering your projected profit. Keeping in mind, that every day on the market is costing you money through borrowing costs, taxes, insurance, etc.
Wholesale
If the property turns out to be more than you anticipated, consider wholesaling it to another investor.
Wholetailing
Wholetailing is a combination of wholesale and retail. It is not a full renovation. It is making only the necessary repairs to make the property liveable. Necessary repairs could be a quick clean out and/or basic repairs like plumbing, electrical, or structural essentials, followed by cosmetic repairs. You are selling to a retail buyer but not as a complete renovation. If there is a market for properties not completely renovated, it’s a worthwhile strategy.
Breakeven
With daily holding costs adding up, sometimes it’s best to get your money out of the deal and forego the profit. This is where knowing your numbers is essential.
Long-term Stategies
If you need to wait until market conditions improve AND you have the time (and money) consider refinancing your finished flip with a lower-rate, conventional loan, and pay off the original lender.
Rentals
With the shortage of inventory, it’s a renter nation. Short or long-term rentals can generate income until the market improves. Traditional rental methods tend to be straight forward and simple.
BRRR Method
This is an acronym for Buy, Rehab, Rent, Refinance, Repeat. Once the rehab is completed, refinanced and the original loan paid off, you can rent out the property to create an income stream. Once you have an income stream, refinance the mortgage to extract your original investment and begin the process again. Deal Machine states “
