In the real estate investing industry, we all have different business plans and business goals. Some of us have a focus on building our rental portfolio, while others might want to wholesale everything for quick cash returns. The beauty of investing in real estate is that we can create our own plans, and we have the power to decide which exit strategy to utilize for each deal.
With supply and demand in the market, though, sometimes there are exit strategies that make more sense because of the specific market conditions. By watching the supply and demand trends and planning your exit strategies based on this, you’re opening yourself up for more profit and an easier process because you aren’t fighting against the market.
Seller’s Market
Consider when inventory in the market is low. Homes aren’t on the market long, and the selection is limited.
Buyers aren’t looking at dozens of houses, waiting for the exact right one or the home of their dreams. They are a bit more open to finding a home that doesn’t check all the boxes but is the best option out there for them at that moment in time. Because of this, you don’t have to have a completely renovated property that looks immaculate. A full renovation takes time and added costs when, honestly, you can typically sell it in less-than-perfect condition quickly and put the money in your pocket.
The lack of housing inventory drives buyers to pay more than the market would typically demand. Sellers are in a position of power and are often in situations where buyers are bidding against one another to drive prices higher.
In a seller’s market, exit strategies with quick turnarounds make sense so you can move on to the next deal. You might lose out on a little profit with quick turnarounds compared to full rehabs, but if days on market are low, you’ll be able to scale your business faster.
Buyer’s Market
When you’re in a market with a ton of inventory, you have to stand out a bit more from other properties. You can do this by being priced attractively or by having the property updated to stand out.
Know what you’re competing against by running comps in the area so you have a good idea of what’s expected. If you have to update the property, you want to know the level of upgrades to be done so that it’s appealing but not overly rehabbed. Ideally, you want to have the most updated (feels like new) home in a given area but at a price similar to “lived-in” or “well-maintained” homes.
By knowing the market conditions, you can better plan out which exit strategies to utilize. Especially when there is a sense of a downturn coming, you may not want to put in a long-term new construction project or full renovation because if there is depreciation or an economic hardship over that period of time, your profit might be erased after all of your hard work. Be smart with your exit strategies and stay one step ahead of the market.
Knowledge is power.
As published on Forbes.com
