How To Plan Your Property Exit Strategy
Last updated 28th August 2018 • JaeVee Marketing • JaeVee
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!
What's the secret in achieving exit strategies when investing in property?
From individual homeowners to on-going property investors, a crucial factor in making the best advantage of the property you invest in is having a workable exit strategy in place.
If you are still scratching your head in puzzlement and wondering what on earth an “exit strategy” actually is, don’t worry because it is merely investor jargon for deciding on the optimum time to “cash in” your investment.
Making calculated and realistic predictions
OK, so there is no crystal ball or magic formula available to accurately predict when to “exit” an investment but there are a few things that can be counted on (to some extent anyway) and they should at least be considered.
The first of these is that historically property prices have always risen and also provided better returns than most other forms of investment.
That includes excellent rental potential and profit through value increases.
The other point to consider is that in the UK there is a drastic shortage of housing pushing up prices and rents that looks set to prevail at least until 2030!
Setting viable investment goals
While it may sound obvious, returns usually fall into either the short or long-term and it is important to factor in your goals and financial circumstances because these will have a direct impact on your expectations.
Everything from tax implications to when you expect to retire and how you expect your estate to be dealt with after you shake off this mortal coil ought to have a bearing too.
Whatever your investment expectations may be, planning your exit strategy is going to be a vital component in your overall success.
Making it all work in your favour
The real secret to achieving your exit strategy goals may lie in allowing for a certain amount of flexibility while keeping the number of expected “givens” to the minimum.
As is so often advised, it is prudent to work on realistic minimums and take advantage of the situation if your investment performs better than anticipated.
Most astute property investors will also have their next opportunity already in mind as any current one’s approach their points of exit.
Forward planning is therefore crucial and you would be prudent to continually monitor and adjust in line with any unpredicted changes in the state of the market.
Setting off on the right foot
It virtually goes without mention, of course, that all of the above should be priority points before an individual investor actually takes the all-important decision to invest.
Working backwards and choosing projects that suit your exit strategy goals makes a great deal of investor sense.
You need to bear in mind, however, that you may risk shooting yourself in the foot by discounting an opportunity such as buy to let for example because it doesn’t appear to fit your existing exit strategy profile.
Summing up your options concerning exit strategies in a few words, flexibility in all of the above is likely to be a key factor to your property investment success.
If you'd like to know how to plan your exit strategy, make sure to read this blog post.
Please note, this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.