Know What You Will Do Before You Invest
Whenever you are looking at acquiring an Investment property, you should always know what you plan on doing with it.
You need to know your exit strategy.
Your exit strategy may also include a number of things to prepare for this strategy.
Your exit strategy will also influence how you acquire properties and what you are looking for in an investment property.
Here are a few of the more common exit strategies:
- Rent and Hold – In this exit strategy you are planning on keeping the property and renting it out for a long term.
A couple of things to look for will be how much positive cash flow will the property generate. What kind of neighborhood is the property in? Will the property be easy to rent out?
- Fix and Flip – Here you are looking for properties that you want to acquire, fix up and sell as fast as you can.
When looking for these types of properties you might be looking for properties that need only minor changes, such as new carpets, painting, yard cleanup and other minor renovations that can be done fairly quickly.
You are not concerned about positive cash flow since you are not renting it out. You are interested in acquiring these properties at a price well below market value that when renovated the purchase price and cost of renovations will yield a substantial profit.
You also want to acquire a property in a good neighbourhood where it would sell easy once renovated. These are usually homes that are the ugly ones on the block.
- Lease Option – When acquiring a Lease Option property you want a property that is in a price range of your tenant buyers. If you are working with investors you want to make sure the property is something that the investor is interested in buying.
You could also look for properties that are below market value so as to maximize your return on investment.
If you are doing a Purchase Lease Option, the decision of what to buy is easy.
You buy the one the tenant buyer wants making sure that is still something you or your investor would be happy owning, should your tenant buyer decide not to exercise their option.
So there you have it. Three different exit strategies with three different set of criteria used to acquire each type.