In real estate investing, especially house flipping, almost everyone is focused on entry strategies as opposed to house flipping exit strategies.
Most people are focused on how to find property to flip, how to work with wholesalers, how to wholesale property, working with real estate agents, etc.
Having solid house flipping exit strategies can be a life saver but unfortunately, they do not always guarantee that unfortunate things you hadn’t anticipated might happen. Exit strategies are simply back up plans. So if things do not go your way, you have a plan B.
The feeling and excitement of purchasing a house and rehabbing it is all too familiar. It’s an ecstatic feeling especially when you walk out of the deal with a big fat check.
You should try to figure out your house flipping exit strategy when your deal is already going south. You should have a plan even before you start working on your project. Exit plans do not just apply to house flippers; it also applies to people who buy and hold to sell when the market appreciates or for long term rental income.
House Flipping Exit Strategies
Time and again we have talked about mindset and always thinking positively. But we always emphasize that you should hope for the best and prepare for the worst. Having said that, here are four house flipping exit strategies that you can utilize.
You might come across a buyer who wants to purchase property but they are not in a position to get a traditional loan. They have a steady source of income but are unable to meet the price you want at the moment.
Don’t despair. A lease option is a great way of getting clients to agree to your asking price without making them feel like they are going way over their budget.
Here’s how it works. You draft an agreement between you and the buyer where the buyer agrees to make a down payment. They then rent the property until they are in a position to purchase it. find out if your lender is willing to extend your loan for a longer term. If not, then you will have to find a financial institution or a bank that will refinance your loan.
2. Determine Your Break Even Price
You should be prepared to lower your price such that you only lose a little money or you break even. Either way, you should not lower your price such that it is ultimately catastrophic to your business.
You can think of price reduction strategies by calculating your monthly carrying costs. You should also know the exact date when your loan matures and plan towards it.
If leasing doesn’t seem like a good option, you can always rent out the property. You can rent it out at prevailing market rates. This can be very advantageous especially if there is a demand for rentals in your area.
If your source of financing has high monthly payments, you can lower your monthly costs by re-financing into a long-term mortgage.
4. Take The Loss
Sometimes you just have to accept a loss if you try all the exit strategies and they do not work. You just have to learn from your mistakes and make better decisions next time.
The biggest mistake you can ever make is counting on funds from one purchase to find another flip shortly thereafter. Don’t get it wrong-it’s okay to use money acquired from one flip to fund another one but what if you do not close the deal in time to purchase the next property? This is why you should always have money from other sources to finance your next flip.