Too many property investors do not have a complete plan. A complete plan includes an exit strategy. At some point, even if you want to buy and hold for ever…unfortunately we do not live forever. Thus one needs an exit strategy for property and Professional HMOs. Tax laws are changing as well lending criteria from banks. Therefore before you jump in and simply think you can create passive income, think it through. Think about your own liquidity…Strongly suggest do not over leverage…I speak to many property investors and so many have really not thought out a complete property investment plan. They think they can simply invest without a plan.
Basically property investment exit strategies are fairly straight-forward:
- Simply Hold it and let it cash flow. Pay down the mortgage and sit tight. If you are making great cash flow from the property, especially higher cash flow after the property is paid off, why sell it? You can just sit and collect the cash flow. Prices have the probability of increasing over time. This is a very simple exit strategy.
- Cash-out refinance it. In this case you will continue to own the property and collect cash flow, but if you have gained appreciation/equity on the property, you can refinance the loan on it and use that extra money for whatever you want (hopefully buying another investment property!). Your loan amount will then be higher, and you want to make sure this higher amount will still be covered by the income the property is bringing in. You can also use it to fund a home equity loan or any other creative financing methods you might be interested in.
- Sell it to a first time home buyer. You can sell it as you would sell any other property. Selling to first time buyers is your best chance for getting the most for it. Investors will always want or expect a deal, but first time buyers typically offer closer to full value.
- Sell it to an investor. You network with investors in your area. Go to local Pin meetings. Learn who are the players.Investors are always looking for cash flow.