HOW DO WE GET OUT?!?
When I first saw this house, I LOVED it! “Uh oh,” says that little voice, “this is real estate investing—keep your emotions out of it!” Oh, but it was perfect! Ugly, dirty, in disrepair and below market value because it had already been listed for 6 months. To keep it rational, I put in an offer and brought in an inspector. “There’s plenty of room for improvement,” he tactfully said, “but this house is structurally sound.” To keep it practical, we cleaned and then started repairs first. The “pretty stuff” budget can grow or shrink, after the repairs are done. Some of the other trades came in and freely offered their opinion, “not pretty, but a very well-built house.” It was almost unanimous!
That was several years ago. Yes, we added the “pretty factor.” And yes, it attracted some fabulous tenant-buyers. And yes, our joint venture (JV) partners have been happy with the deal so far.
But then, March 2, we found out that our planned exit strategy would not work. Huh.
This is a common story in Canada right now, for a variety of reasons. Rules are changing fast in cities and provinces. And we don’t even have the federal budget yet (possible tax changes coming for investors). Some investors had a plan for their Saskatchewan properties – and wow, some of them are doing an amazing job adapting to sudden and unexpected changes.
So here’s my point. As real estate investors we all love pursuing the deal, getting started on a new flip, finding a new partner. The beginnings are exciting, and fun! As much as we enjoy a new deal, one of the weird things about our investing plan is how much we love a property with multiple exit strategies.
How do we get out? That was the conversation we had with our Joint Venture partners in early March.
- Well, the market has risen enough that we could refinance. This means that our JV partners could get their initial investment capital returned in a strategy known as a BRRR (Buy Renovate Rent Refinance).
- We could continue renting it and enjoy strong cashflow without a refinance.
- We could attempt to add a little more value (force appreciation) by building a 2-car garage. Again, because of the rising market, spending this money would still make sense with respect to Return on Investment.
- We could do some minor touch ups, and search for a Tenant Buyer.
- We could even end the Joint Venture partnership, and I could search for another partner.
- We could make it prettier with staging, and list it on the market.
We ended up with so many possible exit strategies, it was almost overwhelming!
Ideally the how-do-we-get-out conversation happens with every deal. Yes, of course, circumstances change and wild cards come flying in unexpectedly. Don’t panic when Plan A goes sideways—or even upside down! Talk to some investor friends, talk to some experts, gather your intel. Then brainstorm all of the possible exit strategies that are available in the present moment, and that could be reasonable in the future (eg. Buy and Hold for another 5 years). Some options will clearly be less desirable for your WHY.
Our blog today is mostly intended for investors entering a deal. So they start Day 1, with thoughts about how they could possibly exit the deal if necessary. I still haven’t met anyone with a true Crystal ball to foresee the future, but we do love Franklin Covey’s advice in 7 Habits of Highly Successful People, “Begin with The End in Mind.”
Feel free to connect with us any time to chat about real estate investing. Our contact info can be found through our websites and FB pages:
https://mountainsedgerenovations.com/
https://mountainsedgedevelopments.com/
@mtnedgerenovate @mtnedgedevelops
Also, because of our skillset, we are sometimes in a position to help people figure out how to get out of a problem house. Connect with us to learn more. It all starts with a simple conversation.
