Buy now, or wait? Real estate investors struggled with this question in 2024.
The 2024 real estate market presented both opportunities as well as challenges. There were potential advantages—a general housing shortage and strong rental demand— low inventory presented challenges.
This year, the real estate market is changing. According to Yahoo!, the value of some types of homes will surge by the end of the year. These include historic homes, multifamily units, sustainable and eco-friendly homes, and furnished apartments and condos.
This signals an opportunity for savvy investors like you. But don’t just focus on the entry—finding the right property, securing financing, and getting tenants. Plan an exit strategy beforehand.
Here, we’ll discuss why exit strategy matters and share a few of them to help you maximize profits when it’s time to move on.
Why do Exit Strategies Matter?
Investing in real estate is a great way to build wealth. But you don’t make money when you buy them. You make it when you sell. Without a solid exit plan, you could end up leaving thousands or more on the table.
A clear exit strategy is a defined plan that will help you minimize potential losses while maximizing gains. It helps you answer key questions before you get stuck in a bind:
- When should I sell?
- Who’s my ideal buyer?
- How do I minimize taxes and fees?
Without that clarity, you risk making impulsive decisions—like selling too early during a downturn or holding too long as maintenance costs pile up.
Note that exit strategies aren’t just about cashing out. They dictate how much you walk away with after accounting for taxes, closing costs, and market shifts.
3 Real Estate Investment Exit Strategies to Consider
Here are some exit strategies you can consider for maximum profit:
1. The BRRRR Strategy
Heard of the BRRRR method? It’s one of the most popular wealth-building tactics in real estate.
BRRRR—Buy, Rehab, Rent, Refinance, Repeat—is basically a way to pull money out of a property without actually selling it.
Here’s how this strategy works: once you buy a property, you will have to renovate and rent it out for a steady income. When the value of the property increases, you can refinance at its new, higher value to pull out the equity built through renovations. You can use that extra cash to invest in more properties.
Note that even after refinancing, you will still hold on to the property for a longer period and make rental income. As it lets you cash out equity while keeping the appreciating property, it’s a smart exit for long-term wealth-building.
In real life, Kumar Sadaram, a real estate investor, acquired more than 50 properties with this method. He says it’s one of the best ways to build a portfolio.
2. 1031 Exchange
Selling a property outright often means a hefty capital gains tax bill. But you can sidestep that burden with a 1031 exchange—a powerful tax-deferment tool for real estate investors.
A 1031 exchange will allow you to reinvest the proceeds from the sale of one property into a like-kind property without paying capital gains taxes immediately.
Investopedia informs that this provision is for business and investment properties, not for personal property.
Don’t go for another traditional property, however. Instead, use this opportunity to diversify your portfolio into different property types. That is to say, use the 1031 exchange to shift from active management properties, like single-family homes, into passive options, like commercial or triple-net leases, as you build wealth.
A 1031 exchange is also a popular DST exit strategy. DST stands for Delaware Statutory Trust.
According to 1031 Crowdfunding, DST is a passive real estate investment tool that allows investors to own fractional interests in high-quality, institutional-grade properties. The DST retains full legal ownership of the properties, while investors receive a proportional share of the income generated and any potential appreciation in value.
However, proceeds of the relinquished property must be reinvested in a new property that meets IRS requirements, such as matching the original property’s worth.
3. Seller Financing
Struggling to find a buyer? Seller financing can help solve the problem.
Seller financing basically involves selling your property but acting as the lender. Instead of a buyer securing a mortgage through a bank, they pay you directly—plus interest.
What’s great about this strategy? You can sell the property at a higher price since you’re offering favorable terms. Plus, you earn interest on the loan, which boosts your overall profit.
Seller financing works especially well if you own the property free and clear or have significant equity.
Ellen DeGeneres is a case in point. The well-known comedian, actress, and TV host lends money to her immediate family through seller financing so they can buy homes under favorable conditions.
Plan Your Exit From Day One
The key takeaway? Always have an exit strategy in mind before you buy a property. The best investors don’t wait until they are ready to sell to figure out their next move. They plan it from the start.
These strategies require more creativity and often more work than traditional exit. But they can significantly increase your returns and give you a competitive edge in the market. Just pick a strategy that aligns with your financial goals and market conditions, and you’ll succeed.