MULTIPLE EXIT STRATEGIES FOR EACH PROPERTY
In Calgary today, most of the investors are talking about the BUY. They discuss how easy it is to get into a good property at a good or great price. But would you buy an ice cream shop in Antarctica just because it was cheap? We admit, this is an extreme example! However, we consider each real estate investment property to be like its own small business: buying at a good price is only part of the business plan. Knowing your customers, and planning your exits are concepts that are as important to real estate investors as they are to any business owner.
Imagine you found a great deal: maybe $50,000 below today’s market value. What do you plan to do with it? Some properties are ideal for adding a legal secondary suite. Some properties are ideal for a Rent to Own candidate/family. Some properties you just want to keep in your Buy and Hold portfolio. And some properties are best torn down/repurposed/flipped. But today, we’re considering what happens when your Plan A goes sideways.
For example, what if you bought a property, put a Rent to Own candidate in, and then your candidate lost their job? Or maybe the couple got divorced and didn’t follow through? What if your Buy and Hold property receives some damage, like in the 2013 floods in Calgary? What if a zoning change or transportation change comes close to your planned flip—right before your permits get approval—and now your flip is next door to a warehouse instead of a green space? As investors we do our research and due diligence, and we always go in with a solid plan; REALITY is that some things are unpredictable, and weird things do happen every day.
It is simply part of the risk mitigation of real estate investing to go into each property=business with multiple exit strategies. In Vancouver these days, flippers have watched the potential value of their renovated homes drop by hundreds of thousands of dollars over the past year or so. Some are going into foreclosure, but many are looking at their Plans B & C; for example, there are multiple news stories of some mansions being turned into student rentals in Vancouver. Very creative solution to get an expensive property closer to positive cashflow. A different example is what if a Rent to Own doesn’t work out—for any reason—can the home be a simple rental? Would it have positive cashflow in your Buy and Hold portfolio? Could you do some fancier renovations and turn it into a long term flip. Or could you simply clean, and paint, and find another Tenant Buyer for that Rent to Own property?
Stephen Covey devotes an entire habit to “begin with the end in mind.” This is a great habit to follow when looking at each new property. We analyze many different factors, but we always consider whether or not that property can have multiple exit strategies if something unforeseen happens. We encourage our colleagues to have a plan, but keep a close eye on back up plans B & C as well. Follow us on Facebook @MtnEdgeDevelops to see some of the other economic and social influencers that we are paying attention to today in Calgary.
