The first rule in the art of the investor exit strategy is to have more than one. It is almost certain that a hard money lender is going to bring up your real estate exit strategy. So, before you apply for a private capital loan you need to be prepared to provide one.   In fact, one possible exit scenario does not cut it and cannot provide the needed flexibility as markets adjust.   As you plan your exit strategy there are three important questions that need to be answered.

1. If my exit strategy is to sell the property after fixing it up and increasing its value, what time frame is realistic for me to anticipate finding a buyer?  Consultation with professional Realtors could be helpful to get insights into this question.
2. If my real estate exit strategy is to refinance the property with a bank or institutional lender what needs to happen before this could occur?  Again a visit to your your banker (who presumably did not give you the original real estate loan and the reason you are working with a hard money lender) to discuss what he or she would like to see happen.  This will help you and your property qualify for a bank loan.  Getting a realistic take on trending market conditions is undeniably important.
3. If your investor exit strategy is anticipation of receiving cash from the sale of another property or from any other source, you need to take a cold hard look at how realistic these expectations are.  You don’t want to give yourself a one year time frame to pay off your hard money loan and then find that it will take longer than that before you get the needed funds.  Try to take a loan for a period that is somewhat longer than you think you need to be on the safe side.  You could incur significant penalty interest or renewal fees if you can’t meet the due date of your hard money loan.

These three questions help to understand if your assumptions are realistic and well thought through, what benchmarks need to be achieved for the exit strategy to work out, and if your cash flow projections are within reason. Having a strong foundation, built on a realistic exit strategy, helps prove the borrower competency when a previous lending relationship has not been built. Additionally, successfully working through exit strategies further develops fundable relationships, i.e. more access to capital when you need it most.

[google_authorship], because of his more than 40 years of experience in funding hard money loans, is considered an authority on hard money or bridge financing.  He frequently speaks at meetings and conferences and writes articles on these subjects.