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5 Backup Plans When Your Exit Strategy Did Not Work
Real estate investments are more than just buy hold sell. It is much more than that. When you purchase a property without having a clear plan on your exit strategy, you belong to the 99% who have no idea what they are getting into. And you are probably buying property based on newspaper reports and following the crowd without the slightest idea what were the growth in property prices over the last 5 years. Yes you might still make money from the property boom. But don’t kid yourself. You made money attributed more to luck than that midas touch. However, I would prefer to be a lucky investor than a good one on any day. Just that luck can tilt both ways at any time from good luck to bad luck.
While having a clear direction of what your exit strategy looks like will put you ahead of many first time investors, things do not always turn out the way you expected. Macro and micro circumstances can make your exit plan look like a fantasy scenario on Playstation. But before you raise your hands to the heavens and curse the sky for the bad weather, here are some backup plans that may work for you.
Boost your presentation. The most economical way to increase the appeal of your property is to dress it up. The gist is to make it visibly more appealing with home decorations. Perceived value is more appealing to home buyers while real value is the focus of investors. While you may think that your personal taste in design is as good as any designer you see in magazines, the truth is that people have differing tastes. An expert interior designer will have a better feel of how to make a home appealing to the mass market. So getting help from a designer could help you more than you ever thought.
It might also surprise you that there are companies that function around this as a business. They are “staging” companies who will doll up your apartment and make it look twice of what it is worth. They take charge of decorations while also providing the furniture to create the desired aesthetic appeal. If you are to go about these “staging” activities yourself, it may not be worth the time and effort. So getting these professionals to help you could be a good move to snag that home buyer.
Make your sales terms more attractive. The best way to sell big ticket items are to offer attractive sales terms like no money down. Offering a no money down deal may be out of the question for you. But take note that these deals are popular all over the world. Instead of offering no money down on your property, you can offer other terms to entice a buyer to take action.
Sometimes we are too used to structured regiment that we immediately debunk an idea that we are not used to seeing. And a lot of times we refuse to compromise on deals to avoid the social aspect of looking like a loser in front of others. But if you are ready to shift up a gear on your backup plan consider offering sales terms like paying for the closing costs, offer to pay the first 3 months of the buyer’s loan, offer to remodel the kitchen up to a certain cost, promise to build a jacuzzi for the buyer before he moves in, etc. You might laugh at some of these suggestions. But when the thought of your negative cash flow gives you a nose bleed, these ideas could be what will save you from a dramatic downfall.
Cash out and rent out. The lack of cash reserves to hold up your property might be the reason why you have to sell now. You did not plan to hold onto the apartment beyond a 5 year investment. If the market is so bad for buyers that you are unable to find one, you can consider a short term fix. Refinance your property and cash out with a home equity loan. The funds generated can help to alleviate some of your immediate cash flow problems. At the same time quickly rent out your apartment and give the tenant an option to buy the property at a specified price at the end of the lease. When a tenant has lived in a property for an extended period of time, he may have an emotional attachment to it and be more willing to buy at your price.
Get a partner. The most common reason why many businessmen do not work with partners is because they have worked with partners in the past. And the disadvantages of working with one had taught them a lifelong lesson. If you do not have any reservations with bringing in a partner, it is an option that you can consider. A lot of people want to get onto the property investment bus one way or another. And many of them do not have enough cash to get into it themselves. By offering the chance as a partner, you are giving them an easy route in. Your family and friends could be your first channel of raising funds.
Get out now. It takes a big man to admit that he has made a mistake. Investors make mistakes all the time. It is through these mistakes that world class investors are moulded. The difference between a good investor and a bad one is the former admits mistakes and move on. The later will hold onto a loser and be petrified to move on. Sometimes the only logical option is to sell at a loss and move on. It makes more sense to sell or rent at a loss than to use your credit lines to keep the property afloat. You ego is a big barrier to making logical decisions. Don’t let it get in the way and let your bank account suffer. Many first time investors are buying new launch condominiums expecting a huge appreciation by the time these condominiums are completed. It is not a guarantee that they will rise in prices. In many markets, the reluctance of admitting a mistake has caused investors to incur huge losses holding on to preconstruction properties.