One of the secrets that experienced investors know is that you don’t just make your profit when you sell your property, you make it when you buy; if you want to guarantee a return on your investment, you have to figure out how you’re going to make that profit before you put the money down, not after. And the most successful investors know that projects don’t always go as planned, so they have multiple exit strategies for each project. The costs of holding onto a property for longer than you expected can quickly eat into your profit margin and keep your assets tied up so you can’t take advantage of other opportunities.

So what kind of exit strategy should you use? It’s going to depend on the project, but these three exit strategies will work for most investment properties, whether they are commercial or residential.

1. Sell the property to an owner/business. If you plan to fix up and resell your property, then you should make sure that it will fit an owner’s or business’s needs. Do you have a hypothetical, potential buyer in mind? Is it in a location that will be good for a business? There’s no point in picking up a distressed property for a steal if there are problems that renovations or improvements can’t fix (such as a poor location).
2. Sell the property to another investor. While this involves a similar strategy as the first option, it can be done in two different ways. If you start a project but then it doesn’t go as planned and you feel like you’ve gotten yourself in over your head, then you might be able to wholesale the property to another investor (most likely at a discount) and move on. Or, if you know this property would be good as an income-producing investment but you don’t want to manage it yourself, then you can rehabilitate it and find the tenants before selling to another investor who does want to be a landlord. This not only makes your property more valuable, it can also make it easier for your potential buyer to obtain a loan to purchase the property.
3. Refinance the property and lease it yourself. While not always ideal, as not all borrowers want to take on the extra responsibilities of managing a property after it has been rehabilitated, often when the market isn’t good for selling a property, it can be good for leasing it. And if you’re able to refinance into a lower-interest loan, then the lease payment can often cancel out the monthly mortgage payments and other holding costs and potentially even become a steady stream of additional income. This can be an especially good option for multifamily, office, and retail properties with the potential for multiple tenants.

If you have a property you’re thinking of buying but you haven’t figured out your exit strategy yet, Montegra can help. We have over 50 years of experience financing hard money loans for commercial real estate projects in Colorado. Contact us at 303-377-4181 for more information.