How To Plan Your Exit Strategy
We assume one would agree that your proposed property development is only as profitable as your exit strategy. There are three types of exit strategies to pay off development loans - sell, let & hold or refinance.
Most property development lenders and joint venture partners prefer the sell option as it helps them forecast an exit based on recently sold comparables to those you’re proposing to build.
Let & Hold
Sometimes, property prices can go down (not just up) during the development cycle therefore it’s important for every property developer to forecast a worst case scenario - being able to rent the properties whilst awaiting for the market to recover.
It could be that your strategy is ‘build to rent’, therefore meaning your proposed exit is to refinance the end market values (using a term mortgage) once the construction works have finished. This strategy is proving more and more popular as the private rented sector continues to grow i.e more people renting than buying.
Why should you have an exit strategy?
Having an exit strategy is advisable so you have a clear goal with what you intend to do with the property you have brought and how you intend to reap the returns of your investment and hard work. Having an exit strategy from the outset also allows you to plan ahead for every eventuality to minimise the risks of property development.
Your exit strategy is the end goal, and should be the foundation of your investment strategy.
The importance of having an exit strategy from the beginning will provide direction and provides clear goals, it answers the questions of what if, should I? Could I?
Remember the variables
When planning your exit strategy you must factor in the variables. Will your exit strategy hold up if the market changes? Houses price fluctuate? Will it survive if there is an over or under supply? What happens if unemployment rates spike in the area or there is a natural disaster such as a flood causing irrefutable damage?
It is also good to have a plan B, maybe even a C or D too! What happens if you have a change in personal circumstance such as losing your job you may need to adapt your exit strategy and implement it quicker than you had first planned.
Know your goals
What is your end goal? Is it short term? Long term? Is it to make X amount of money? Have enough to buy another property or retire with? This will all help you plan your exit strategy. With a bit of research and lots of planning you can effectively plan your exit strategy to your property development investment and reap the rewards of your hard work! For more information on property development please have a look at our Blog.