Landlording & Rental Properties

5 Smart Exit Strategies for Buy & Hold Investors Looking to Get Out of the Game

Expertise: Personal Development, Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Real Estate Marketing, Mortgages & Creative Financing
143 Articles Written

Many buy and hold real estate investors don’t really think too much about getting out until retirement rolls around. And even then, many of us keep generating passive income through real estate investments for as long possible.

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That said, there are situations in which a real estate investor simply might need to get out of the investment game altogether. It’s probably not ideal, but it might be necessary. And so are exit strategies.

Why in the World Would Anyone Want to Get Out?

Some of us may think getting out of real estate investing is unfathomable. Even on your most difficult days, you still think it’s worth it. Why would you want to leave when you’re earning passive income? As long as you’re making money, why would you want to quit?

Emergencies Happen

Sometimes life just gets in the way, and we have to step back and remove distractions — even when those distractions are making money — because they cause complications. Divorce, illness, and family troubles can all brings on the deeply personal need and decision to make the drastic decision to get out of real estate investment. It’s a personal choice — and sometimes not the one anyone wants to have to make.

Bad Experiences

Not everyone goes into real estate investing and comes out on top. Not everyone ends up with positive cash flow, and plenty of people get discouraged by seeing red every month. An investor could experience negative cash flow, bad tenants, incompetent property management, the grind of landlording, too many bad deals, being burned by partners, disasters, or just old fashioned bad luck. Bad experiences can give someone plenty of reasons to want out.


Related: What’s Your Exit Strategy? A Case for Converting Your Real Estate to Paper Assets

You Decide It’s Just Not for You

People try out investing in real estate and discover over time that it’s not something they enjoy — and that’s OK! It’s something that takes a lot of time and dedication. Not everyone has the drive, desire, or capacity to give the 100 percent they need to. If it’s not for you, it’s just not. An exit strategy is important to have if you ever have that epiphany.

Your Strategy Changes

Maybe you don’t realize investing in real estate isn’t your thing, but you realize a different kind of investment is. That means you’ll likely have to change your entire portfolio, especially if you’re going to be switching to commercial investments, land development, multifamily properties, or something else entirely!

The Top 5 Exit Strategies for Buy and Hold Real Estate Investors

As a buy and hold investor, you basically have one primary way to get out of investing in real estate: Sell your properties. How you do that, however, is where the variations in exit strategy come in.

1. Seller Financing/Owner Financing

This is the most creative exit strategy on the list — and actually another way to invest! Seller financing is a method of note investing in which you essentially act as a bank. The buyer and seller execute a promissory note including an interest rate and repayment schedule that includes a clause outlining the consequences of buyer’s default.

For you, you benefit from monthly income and the ROI of interest, plus the spreading out of your tax liability over a few years. These financing terms also tend to be on the short side, so you don’t have to worry about it being too drawn out a process.

2. Sell Through a Real Estate Agent, Market to the General Public

And now for the perfectly run-of-the-mill strategy, there’s going to a real estate agent to sell your investment properties to the public. This can get tricky if your property isn’t move-in ready, shows more like a rental property (lacking some updates and curb appeal, in other words), or is in a rougher area. These things can deter regular homebuyers who don’t want to tackle any improvement projects.

3. Sell Through a Real Estate Agent, Market to Other Investors

Marketing to other investors is a great idea. Finding a real estate agent who specializes in marketing to real estate investors and investment properties, however, is a little trickier. Possible, but not as common. Still, an agent can be a valuable asset in the selling process to ensure you get the best deal possible. When you target other investors, you also know that they have an eye for what works as an investment property. They’re not looking for something move-in ready.


4. Sell Yourself, Market to the General Public

Obviously, you can sell your properties yourself without the help of a real estate agent. Here, selling to the general public would be the most difficult. You could put up real estate listings online, but here it’s crucial your home shows well and that you have clear, professional photography to display your property. Marketing is key, and having some experience in that area would be a big bonus.

Related: Why the Perfect Time to Plan Your Exit Strategy is Right NOW

5. Sell Yourself, Market to Other Investors

You’d likely fare better selling solo if you’re targeting other real estate investors. After all, you know exactly what they’re looking for, and you know how your properties perform. You can back it up with numbers. You can also consider selling your entire portfolio to an investor, rather than as individual properties! It’s likely, too, that you have networking connections that will help you in your search for a buyer.

No matter what exit strategy you choose, it’s important to decide from the onset how you plan to leave real estate investing, even if it’s never your intention to do so. Buy and hold investors, more than any other kind of investor, don’t tend to think about getting out.

It’s still something we have to give proper due diligence.

Buy and hold investors: What’s your preferred exit strategy? Why?

Leave your thoughts below!

Chris Clothier began building his rental portfolio in 2003 as a successful entrepreneur looking to diversify his investments. He quickly gravitated toward passive investing, establishing a portfolio of over 50 single family homes in Memphis, Tenn. As an original client of his family's firm Memphis Invest (now REI Nation), Chris experienced firsthand what a passive investor endures when purchasing out of state. A few years later he joined the REI Nation team and now manages the development and implementation of sales and marketing processes.
    Jerry W. Investor from Thermopolis, Wyoming
    Replied over 4 years ago
    Chris, Nice article on the various ways of exiting real estate investing or even for shifting your investing strategies. While Dodd/Frank has complicated owner financing it is still possible and all of the above strategies will still work. An owner financier should take the time to at least brush up on the exceptions available, and of course knowing the laws of the state where the property sits is very important.
    Chris Clothier Rental Property Investor from memphis, TN
    Replied over 4 years ago
    Thanks for reading Jerry! Great points about Dodd/Frank and good advice to stay up to date on your local and state laws. I appreciate your contributions. ~ Chris
    Jilly Whiting
    Replied over 4 years ago
    Can someone write an article on this! How to legally sell w/ owner financing these days. Would love to know!
    Chris Clothier Rental Property Investor from memphis, TN
    Replied over 4 years ago
    That’s a great request, Jilly. I, however, should probably let someone more versed in owner financing write that one! Hopefully, BP can send out a request and get that article added. Chris
    Matt Cyberski Investor from Chicago, Illinois
    Replied over 4 years ago
    Here it is!
    Krishna Patel
    Replied over 4 years ago
    Never, Buffet rule. Why sell when heirs gets it at up basis Enjoy cash flow for ever!
    Chris Clothier Rental Property Investor from memphis, TN
    Replied over 4 years ago
    Krishna, Thanks for reading and taking the time to leave a comment. I think many would agree with you. It just makes sense to hold a cash flowing positive property as long as it is, well, cash flowing! But what does an investor do when their options are declining? When they feel their backs are up against the wall? Hopefully, this article gave them a few ideas. Best ~ Chris
    Andy H. Investor from Stockdale , Texas
    Replied over 4 years ago
    Because your heirs may not want anything to do with owning rental properties and the headaches that sometimes come with them. This is actually a great opportunity for a younger investor to get into the game: Find the landlord who just wants/needs to get out and buy their properties.
    Thomas Rutkowski Financial Advisor from Boynton Beach, FL
    Replied over 4 years ago
    Number 1 is the best way to deal with the capital gains tax. The key to investing is to buy low and sell high. 1031 exchanges force you to turn around and buy high again. But you don’t have to accept installment payments for the term of the loan. I can think of a couple of innovative twists that you can put on this that will let you put a lump sum in your account AND defer the capital gains tax. This leaves you free to invest your money anywhere you like in order to maximize retirement income. If interested in learning more, please contact me privately so as to not take this thread off in a wholly different direction.
    Replied over 4 years ago
    I am 76 and need to start thinking about the inevitable. I want to learn more about ways to keep more or passing more onto heirs after taxes. #1 Can the heirs depreciate real estate that I have already depreciated (new basis)? #2 What is the 29% or ? where you need to pay capital gains on the entire sale even that not yet received? #3 How do I best reduce my net worth to a point where I qualify for different old age programs such as assisted living etc. Like everyone I want to give uncle Sam the very least that can still be considered somewhat legal. Any tips will be totally confidential.
    Sefa Demirtas Rental Property Investor from Winchester, MA
    Replied about 1 year ago
    Hi Chris, sorry to revive this old thread. I once heard from a rental investor that they try not to keep a property for more than seven years. I cannot remember why, but this is what i remember. I just remember thinking "if you are selling, would the real estate agent fees not wipe most of your equity at that point". Is this actually a valid concern, or is the core of buy and hold not count on equity/appreciation but cash flow?