Have you ever tried planning a trip without knowing your destination? That wouldn’t make much sense, and would have you spinning in circles.
It is much easier to get there when you know where you’re headed.
This is especially true when it comes to real estate investing. It pays to know your exit strategy from the start and plan accordingly. That way, you’ll know what to prioritize and how to position the property for maximum profit.
What are your exit options?
This is the exit strategy that most people imagine when they think of real estate investing. We have all watched the house flipping shows on HGTV that show the amazing transformation of fixer uppers. They are a fun watch, but for anyone who has tried it themselves, they know the amount of work and prior planning that goes into a fix and flip.
For this exit strategy, it’s important to have good estimates for the repairs needed as well as the after repair value (ARV). We recommend using our free SOW template to itemize and monitor your repair budget. It’s critical to know all of your costs in order to ensure profitability in the end.
Also, keep in mind that, when your end goal is to sell the house, you may want to opt for higher end appliances and finishes. Buyers tend to be a lot more discerning when they are considering a long-term investment.
For some investors, a buy and hold strategy is the way to go. These investors are more interested in the potential cash flow a particular property may generate. In the current inflationary market, this option is generating more interest as a possible hedge given the expectation that future rents will rise in tandem with inflation.
For these loans, you’ll want to pay close attention to something called the DSCR which stands for Debt Service Coverage Ratio. This ratio is intended to measure the project’s expected cash flows in comparison with the project’s debt payments. Ideally, you’ll want a DSCR above 1.
Some investors plan to take advantage of recent travel trends and offer short-term stays to travelers on the move for business or vacation. Short-term rentals are often more lucrative than long-term rentals but are often subject to rapidly changing local laws and regulations. These properties also require more hands-on management for booking and maintenance which can boost potential expenses.
As always, we recommend running the numbers to ensure profitability in the long-term. Reach out to local legislators in your area to be aware of what’s coming down the pike. You may also want to consider outsourcing the booking and day to day maintenance to an experienced property manager. In this space, customer satisfaction is the key to success so strive for five stars.
Talk Through It With Us
Not sure exactly what your exit strategy should be? It can be a confusing choice, and we’re happy to weigh in. Reach out to us at info@gonavcap.com or give us a call at 888.444.3160 to talk through your options.
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