Here are 10 common alternative real estate exit strategies that investors should be aware of:
- 1. Flipping: Buy a property, renovate or improve it, and resell it quickly for a profit.
- 2. Lease options: Lease the property to a tenant with the option to buy it at a set price and timeframe.
- 3. Seller financing: Offer financing to a buyer, where the seller becomes the lender and collects payments with interest.
- 4. Rent-to-own: Lease the property to a tenant with the option to buy it at a set price and timeframe, and a portion of the rent payments go towards the down payment.
- 5. Real estate investment trusts (REITs): Invest in a company that owns and manages real estate properties and earns profits through rental income or appreciation.
- 6. Buy and hold: Purchase a property with the intention of holding onto it long-term and earning rental income.
- 7. Wholesaling: Find a property at a low price and assign the contract to a buyer for a profit without actually owning the property.
- 8. Auctions: Purchase a property through a public auction or foreclosure sale.
- 9. 1031 exchange: Sell a property and use the proceeds to purchase a different property without paying capital gains taxes.
- 10. Joint ventures: Partner with another investor to purchase and manage a property together, either short-term or long-term.
Lease Option/Rent-to-Own
Lease options and renting to own are similar in that they both involve renting a property with the option to eventually purchase it.
In a lease option, the tenant signs a lease agreement with the landlord, but also includes an agreement that gives them the option to purchase the property at a specific price within a certain timeframe. During the lease period, the tenant pays rent and often a non-refundable option fee. If the tenant decides to exercise the option to purchase the property, the option fee is typically credited towards the purchase price. If they do not exercise their option within the agreed timeframe, the option fee is forfeited and the lease ends.
In a renting to own agreement, the tenant also signs a lease agreement with the landlord with the option to eventually purchase the property. However, with renting to own, a portion of the rent paid each month is typically credited towards the purchase price of the property. This means that over time, the tenant accumulates equity in the property even while they are renting. At the end of the agreed-upon timeframe, the tenant has the option to purchase the property using the accumulated equity as a down payment.
Both options can be a good choice for people who want to eventually own a home but cannot afford to purchase it outright at the time of the rental agreement. However, it is important to carefully consider the terms of the agreement and ensure that they are in your best interest before signing any contracts.
Convert Your Property to a Short-Term Rental
Converting your property to a short-term rental involves transforming your property into a space that can be rented out for shorter periods of time, typically for a few days or weeks, instead of being rented out on a long-term basis. This requires several steps, including:
- 1Legal considerations: Before converting your property to a short-term rental, you need to research local laws and regulations to ensure that short-term rentals are allowed in your area. Some cities and municipalities have strict regulations on short-term rentals, which may include licensing requirements, minimum stay requirements, taxes, and more.
- 2Property preparation: Once you have confirmed that short-term rentals are allowed in your area, you need to prepare your property for guests. This may include furnishing the space, stocking it with linens and other essential items, and ensuring that it is clean and safe.
- 3Marketing: To attract guests to your short-term rental, you need to market it effectively. This may include creating a listing on a vacation rental website, advertising on social media, and promoting the space to your network of friends and family.
- 4Guest management: As a short-term rental owner, you will need to manage guest bookings, communicate with guests before and during their stay, and ensure that the space remains clean and safe for each new guest.
- 5Financial considerations: Converting your property to a short-term rental can be a lucrative income stream, but you will need to manage pricing and expenses carefully to ensure that it is profitable. This may include setting competitive prices, managing occupancy rates, and tracking expenses such as cleaning fees and repairs.
Overall, converting your property to a short-term rental requires careful planning and execution, but it can be a rewarding way to earn extra income while sharing your property with visitors from around the world.
Bundle Multiple Properties
Bundling multiple properties refers to the strategy of selling multiple properties as a package deal. This could mean selling two or more adjacent properties as a single entity. Alternatively, it could mean selling several properties that are located in different regions but are interconnected through some common theme or purpose.
The benefits of bundling multiple properties include:
- 1. Increased marketability: Bundling properties can make them more attractive to potential buyers who are looking for a larger investment opportunity. This is especially true for investors who are looking to maximize their return on investment by diversifying their portfolio.
- 2. Higher sale price: By bundling properties, the seller can often command a higher sale price than they would for selling each property individually. This is because the package deal may be more valuable to buyers than the sum of its individual parts.
- 3. Streamlined transaction process: Selling multiple properties as a package deal can simplify the transaction process. There may be fewer logistical challenges involved with selling multiple properties at once rather than handling individual sales.
Overall, bundling multiple properties can be a smart strategy for sellers who want to maximize their return on investment while simplifying the transaction process.
Guerilla FSBO Tactics
FSBO (For Sale By Owner) guerrilla tactics refer to the methods used by sellers of a house without the help of a real estate agent. These tactics can include extensive marketing efforts, creating a compelling listing description, developing a strong online presence, and networking with potential buyers. Homeowners can also consider hosting open houses, offering incentives, and creatively staging their properties to stand out from the competition. The goal of FSBO guerrilla tactics is to sell the house quickly and without the need for a real estate agent. However, it is imperative to follow all legal procedures and requirements while doing so.
Auctions
Real estate auctions are events where properties are sold through a public bidding process. These auctions can be conducted in-person or online, and they often attract real estate investors and homebuyers looking for a good deal.
In a real estate auction, the property is typically advertised for several weeks or months before the event, giving potential buyers time to research the property and assess its value. On the day of the auction, participants register to bid and are given a bidding paddle numbered with their unique identifier.
During the auction, the auctioneer takes bids from the participants, starting with a minimum bid that is often set below the property's market value. Participants then raise their paddles to indicate their willingness to pay a higher amount. The auction continues until no more bids are made, and the highest bidder is declared the winner.
Once a property is sold, the winning bidder is required to pay a deposit (usually 10% of the purchase price) and sign a contract, with the closing date often taking place within 30-60 days.
Real estate auctions can be an effective way to sell properties quickly and efficiently, and they offer a transparent and fair bidding process. However, they can also be risky for buyers, who may not have the opportunity to conduct thorough inspections or research on the property before the auction.
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