Best Exit Strategies for Multifamily Investors


Property dealers should always remain aligned with exit strategies while buying an asset. Comprising the recent fluctuations in property prices, planning an exit strategy has been challenging for multifamily investors. However, you should have a streamlined exit plan to withstand the real estate market’s sudden ups and downs.

This blog will discuss the exit strategies that every multifamily investor should plan while investing in a property. Moreover, you can know the importance and need of an exit plan in detail. Continue reading to learn more!

Top 6 Exit Strategies for Multifamily Investors

Here are the top 10 exit strategies that multifamily investors can follow for a better ROI:

  1. Buying and Holding

Under this strategy, you need to buy an investment property and hold it for a long-term of about 5-10 years or more. This way, you will be an equity holder in the property and earn profit while selling it. However, it has some drawbacks as well.

As you are holding on to a property for the long term, you cannot utilize other investment opportunities equally. So, your earnings are dependable on a single investment when you apply this strategy.

  1. Selling

Selling your multifamily property is the ultimate exit option where you can gain 100% equity in your property. In addition, properties with more than 100 units can attract larger groups such as family offices, larger institutions, private equity firms, and more.

Consequently, they offer you a better deal after paying off your loan, brokerage, and closing costs. So, you can earn a price for each door and earn a higher profit.

  1. Refinancing

Refinancing helps refresh your investment by paying off the existing debt or enhancing your property value. It is not a proper exit plan, but it can help you remain economically stable and profitable.

With this refinancing option, you can renovate your property and increase its value. Moreover, it will help you avail low-interest rates to cope with the fluctuations in economic conditions.

  1. 1031 Exchange

Under this strategy, one investment property gets a tax-deferred exchange for the other. With this exit plan, you don’t need to pay capital gain taxes while selling your property. Instead, you can pay it later at your convenience.

However, this strategy comes with a drawback as well. You need to find another property of higher value in exchange for your property within a limited time. This can be hectic, considering the volatile market conditions.

  1. Repositioning

When you opt to reposition your property, you can convert it into multiple asset classes per the returns. It also enhances your property’s value as you change the purpose of your property and convert it to a demanding one. As a result, you can earn a higher ROI (return on investment) from your property.

You can also buy a less demanding property and reposition it by renovating the asset. It will enhance the property’s value, and you can rent it at a higher price. Besides, you can sell it at a higher ROI and earn maximum gains.

  1. Adding another Investor

Adding a new investor or partner will reduce your investment risks. However, it will also lead to sharing the profit with the new investor.

You can merge your company with a larger one or sell out your business against a position in that unique organization. It will help you access new markets, share resources, etc.

So, by inviting a new partner, you can add more value to your property despite sharing a considerable part of your earnings.

However, you need to select the partner wisely to earn maximum benefits. It would be best if you remembered it is a joint venture, and both of you need to put in valuable efforts to enhance the profit share.

Therefore, it is better to refrain from selecting an inexperienced partner, as it can prove harmful to your investment. On the other hand, an experienced partner with the potential to take wise decisions will prove beneficial for you both.

  1. Seller Financing

In seller financing, the property seller lends the money to the buyer as a mortgage loan to purchase the property.

Buyers can acquire the property against some down payment and repay the loan in monthly installments. It is a strategy to attract buyers in a market with more supply than demand.

This strategy comes with some perks and cons as well. It helps the buyer borrow a loan without maintaining any credit score as the lender is the seller. Moreover, sellers and buyers can negotiate loan terms, interest rates, repayment structures, and other essentials. So everything is carried out smoothly.

On the other hand, buyers fully own the property once the debt is paid off. Besides, the sellers must be careful while lending money to the buyers.

In addition, there are risks of fraud borrowers. So, sellers applying this strategy should appoint experienced employees for asset management to deal with the borrowers carefully.

  1. Value-Add

Another notable exit strategy that can help you maximize your property profits is investing in value-add properties. Under this strategy, you can invest in an undermanaged property and enhance its value through refurbishment and renovation. It will help you increase the property value gradually with its improvement.

  1. Sales-Leaseback Arrangement

In a sales-leaseback arrangement, the property owner can sell their property and release themselves from the ownership but still reside there for a certain period.

Here the seller earns money by selling their property, and the buyer acquires it by renting it to the seller. Both parties mutually agree, and sellers can only reside for that agreed period.

Moreover, the seller can lower his capital commitment without leaving the property. This is because when the seller starts residing as a tenant, he does not need to pay taxes and other costs as the owner. Besides, the buyer can earn by leasing the property to the seller.

  1. Rent to Own

Rent to own is an exit strategy in which a tenant can lease a property with a commitment to purchase it after the completion of the lease term. In such cases, both the owners and tenants make two separate agreements. First, the tenant must sign the rental agreement and another agreement to purchase the property.

It can be a viable option for both the sellers and the buyers and attract potential buyers. Moreover, it offers a stable source of income to the sellers until the lease period ends and need not list the property for sale.

On the other hand, the buyer can reside in the property without any ownership and know the property well before owning it. However, sellers must stay alert to real estate fraud and select buyers wisely to avoid such hassles.

What is Real Estate Exit Strategy?

An exit strategy is a multifamily investor’s plan to sell their property to investors or another company strategically. With a proper exit strategy, property owners can reduce or sell their ownership interest while still making a sizable profit if the property is rented out or sold successfully.

A multifamily property owner can minimize losses if they have an exit strategy. If an investor, such as a venture capitalist, wants to prepare for cashing out their investment, they can do so by developing an exit strategy.

What are the Factors to Consider while Choosing an Exit Strategy?

Here are some of the common factors you need to consider while planning an exit strategy:

  • Market Situation

Market conditions play a crucial role while planning your exit strategies. Only some approach is favorable for some market conditions. Therefore, you need to examine the market volatility and choose an exit plan accordingly to reduce your losses.

  • Experience

Your experience in real estate matters a lot in planning the proper exit strategy. However, if you lack the required expertise in real estate situations, you can hire an expert employee to handle the dealings and plan the exit strategies accordingly.

  • Options to Finance

Your exit strategies may include availing of bridge loans or rental property loans. In such cases, you should check for favorable lending options and find a reliable lending partner.

  • Property Value, Conditions, Price, etc.

Your previously invested amount, location specifications, asset value, etc., will always determine how you can proceed. You should be aware of the price you paid for the property, its current market value, and its location. Improved facilities and a recommendable neighborhood might increase your possibilities, while the opposite can reduce them.

Bottom Line

Concluding the entire article, a successful real estate investment depends on four factors. They are proper education, risk management, diligence, and tolerance.

In addition, there is a correct exit strategy for any investment property, regardless of whether you decide to hold a property and rent it out, opt for seller financing, or reposition. You’ll soon see significant financial gains if you choose the right path.

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