What Do You Plan To Do With That Investment Property in 5 to 10 Years?

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As real estate investors, we look at the numbers before we buy any property (at least I hope we do).  We want our properties to cashflow.  We want to make good, solid investments that will provide solid returns while we own them.  But what about when you are ready to sell, what are you going to do with that property in five or ten years?   Many times investors may not think about that.  But they should.  What should they be thinking about?

What Type Of Property Is It?

Apartment buildings, commercial strip centers ,even farmland, to some extent, are considered investment properties.  That is, they are purchased because of an expected income.  These properties are very different from single family dwellings, as they at least have the potential to be sold on the retail market.  There is no retail market for investment properties.

Retail and Investor Buyers Buy For Different Reasons

Leading in from the above, different types of properties will have different types of buyers.  Investment properties will likely be sold to other investors.  They, like you, will be looking at income.  They, like you, will be looking for a deal.  Therefore, unless you are in a very hot market, do not bet on appreciation with investment properties because unless you can get the property’s income up or the expenses down, the value will likely not increase.

A single family home is generally the only property that you can buy that you will be able to sell on a retail market.  Retail buyers are different from investment buyers.  They buy properties because of a particular school or because it is near to work, family or some other amenity.  They will pay a premium for that.  Investors generally will not.

Related: Why I Invest in Single Family Homes Over MultiFamily

Niche Properties Have Fewer Buyers

Investors are a picky bunch.  We know what we know and like what we like.  Apartment owners are not going to buy industrial property and vice versa.  Single family investors are not going to like apartments.  B class property owners may not like D class properties.  The list can go on and on.  The point is that there are fewer and fewer buyers for your properties the more specialized you become.  Just look at all those empty big box stores in older parts of town that were built for a specialized tenant.  The more specialized you become, the more difficulty you will have finding a buyer when you are ready to sell.

Where Is The Property?  Remember Location, Location, Location.

Location, location, location are still the three most important words in real estate.  All investors should learn about the area they are investing in.  Are they in the path of progress?  Are they in a stable or declining neighborhood?  Is it in a good school district?  Is it near jobs?  All of these things can weigh in on the price you will get when you go to sell.  What are the future plans of your city or community?  Investors should keep up to date.

Related: Long Term Real Estate Investing is like Pitching: Timing and Location Quality Rule

Who Is Buying In Your Area?

Look around at who is buying in your target area.  Is it homeowners, investors or a mix?  Who is buying can affect your exit strategy down the road.  For example, you may be investing in single family properties in a predominately single family neighborhood, but all the properties around you are also owned by other investors.  When you are ready to sell your only buyer is likely to be another investor who is looking at the numbers and for a deal just like you were.  Retail buyers will shy away from these areas.  I see this happening all over Memphis and I am sure it is happening elsewhere as well.

To Sum It Up

One of the old adages in real estate says that you make your money when you buy, not when you sell.  I hope the above will get you thinking about your future investments as we all will likely want to sell at some point.  When you put some thought to it, the above factors and more may just influence where and what you buy.

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About Author

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

14 Comments

  1. Kevin, I like Brandon Turner been buying properties in Gray’s Harbor WA. for years because of the great deals and cash flow. The problem is there still great deals there, values remain stagnate making it difficult to sell at a decent price. Even though I have at least 50% equity in them, it’s still not enough to want to sell them except maybe on a contract.

    My exit strategy was to buy a bunch which I did and sell some later to have mortgage free properties for my retirement. Well with home values remaining level, haven’t sold any. Lesson learned- buy only in areas that are growing in population and jobs and not just for the great deals to be had. Cash flow and appreciation does not go hand in hand, it’s usually one or the other.

    Great post, investors should memorize if they want their future plans to work out. Cash cows are nice, but selling the farm can be a nightmare.

  2. Kevin — Great post! I recently wrote a blog on the importance of the area over the house in regards to single family investing. I could not agree more with the importance of location, location, location. I am a big proponent of buying properties where you would actually live; don’t buy in areas just because the #s’ work. If you buy in great areas, it is easier to sell as you have your choice of investors or home owners. I often wonder what these big funds will do when they look to sell these homes they bought in 38118 and 38141 and find out that homeowners are not coming back to those areas. If you buy great renovated homes in great areas, over the long run, those are the properties that will be the most profitable over the lifespan of the investment.

  3. Dawn Anastasi on

    I have had a plan to buy and hold for 20 years. Then re-evaluate after 20 years because I don’t know where I will be in life at that time.

  4. There’s also an adage that says, “Plan the divorce before the marriage.” It applies to real estate too. I buy for cash flow and then I hold, like for a really long time. I kind of figure if I’m going to the trouble of paying down the mortgage, why sell? Choosing a good location is key though, as you suggest.

    • Kevin Perk

      Sharon,

      I like that adage. it is a good way of saying it.

      And thanks for the back up on location, location, location.

      I appreciate you taking the time to comment,

      Kevin

  5. At some point, I will sell my multi-families and trade/1031 for farm land. I think it will be less work, and will be more hands off.

    • Kevin Perk

      Eric,

      There will certainly not be any toilets to fix that way. :) Farmland is a bit high right now I hear, perhaps even in a bubble like state. Any thoughts there?

      Sounds like a good plan though.

      Thanks for reading and taking the time to comment,

      Kevin

  6. It is always good to buy in more desirable areas to help with resale.

    However I think it is fine to buy in a “stagnant” area if you get a good enough deal and go in with realistic expectations that you might not ever see any appreciation, and any gain you get is likely only any equity you got at the time of purchase.

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