An exit strategy determines how you will end your real estate deal. After weeks, months or years of your investment gaining equity, how will you finally cash out?
Here are the options you can opt for:
Selling FSBO (For Sale By Owner)
Working without a broker will save you 6% of your property value. On the downside, you’ll spend hours of your own time taking photos, marketing your unit, hosting open houses and showings, and networking to potential buyers. Your property will also not show up on any MLS searches, the directory used by other agents to scout homes for their buyers.
Working on your own may make sense if you have one property in your portfolio and a lot of spare time on your hands. Most serious investors, however, will not consider this option, and will work with a broker or a sales team instead.
Traditional Selling With a Real Estate Agent
Working with a broker will save you a lot of time and energy when it comes time to sell. For a 4-8% commission, varying broker to broker, a broker will help you sell by:
- helping you set an accurate price
- listing your home on MLS
- marketing your home via various communication channels
- organizing a professional photo and/or video shoot of your home
- organizing and executing open houses and visits
- spearheading the negotiations and counteroffers.
- helping you with the paperwork and contracts
3. Lease Option
Another option used by investors as an exit strategy is known as the “lease option” or “lease purchase.” This arrangement is actually two separate parts: the lease and the option.
The lease is just like any other rental lease, where the tenant moves into the home and makes monthly rent payments.
The option is a legal agreement that gives the tenant the legal right to buy the home at a pre-determined price in a pre-determined length of time. The option makes it illegal for the landlord to sell the property to any other investor during the pre-determined time period. In exchange for the tenant’s sole “option” to buy the property, the tenant will pay an upfront non-refundable “option fee” that will typically be later applied toward the purchase.
4. Seller Financing
SellerFinancing (also known as “carrying the contract”) takes place when an owner sells a property to a buyer but carries the mortgage rather than requiring the buyer to get their own mortgage. This is done by many investors all over the world for a variety of reasons and across different investment types. In a normal sale, the buyer will go to a bank to get financing for the house, and the seller will receive the total sale price (less selling closing costs) in one lump sum. With seller financing, the seller is the bank, so the buyer will provide a down payment directly to the seller and make monthly mortgage payments to the seller for the life of the loan or until the buyer decides to sell someday.