5 Alternative Exit Strategies to Liquidate Properties Fast
If you’re anything like me, you say the words “Time for Plan B!” more than occasionally.
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That’s how life is — sometimes it goes according to plan, but just as often it doesn’t. A fly in the ointment. A wrinkle in your beautifully laid agenda.
The only difference in real estate investing is that the plan involves assets worth hundreds of thousands (or millions!) of dollars. That means that Plan B needs to be acceptable — fast and loss-free.
Here are five alternatives to selling the ol’ fashioned way, five contingency plans, five alternate exit strategies so that you’ll never find yourself trapped owning properties beyond their expiration date.
1. Bundle for Joy
Have more than one property to sell? Why not bundle them together and sell them as a package deal?
Not all bundled properties are blue-light specials. Some are turnkey properties in good condition and may even be rented and cash flowing nicely.
So who buys bundled property portfolios? It’s a mixed bag of international investors, large funds, group buyers, and individuals with deep pockets. While there aren’t nearly as many qualified buyers, there’s a nice scale-ability to selling multiple properties in one package. Instead of scrambling to sell a dozen properties separately, you can focus all your marketing efforts on a single sale.
2. Auction it Off
If time is more important to you than money and you must sell by a certain date, auctions can be an effective exit.
Make no mistake — most auctioned properties don’t sell for top dollar. Occasionally, buyers will bid the property up above market value, but it’s the exception rather than the rule.
Auctioneers have to build a solid reputation, just as they have to build reliable local marketing channels. That takes time, which is why there are so few auctioneers in any given market. Just look at Sotheby’s, who’s been around since before the United States was a country.
You’ll probably only have a few choices for auctioneers, but choose the most reputable one available.
Talk to the auctioneer about their fees, about their marketing period and sale date, and about their estimated price range for your property. If you really have to settle quickly, auctioning your property may be the way to go.
3. Investor Niche Real Estate Agents
The average real estate agent is pretty, um, average. Part-timers, mommies trying to squeeze in showings in between picking kids up from kindergarten, or fast-talking oil slicks who push-push-push to get your listing and then justâ¦ list it. These are the folks we talked about last week, the ones who are ripe for disruption as the real estate industry catches up with the 21st century.
But there are a few real estate agents in each local market who have a special niche; they just work with investors. They know all the most active real estate investors in the area, and have a Rolodex overflowing with their contact information. They’ve even built extensive email lists of all the best local investors.
These real estate agents don’t mess around. When you give them a listing, they start making phone calls and send an email blast, putting your property in front of every investor in a 30-mile radius. If your price is fair, you’ll have a contract on the same day.
That point about pricing bears elaborating. The price has to be attractive to other investors, if that’s who you’re targeting. If you go this route, you’re effectively selling wholesale, not retail — as with auctions, don’t expect lofty prices. But you can expect a relatively quick settlement.
4. Guerilla FSBO
Can't afford to give up those hefty agent commissions? Why not try listing your property for sale on the MLS using a flat-fee listing service? But don't stop there.
Get on Facebook and start posting details about your property on local real estate investing and buyer groups. For that matter, get on BiggerPockets and offer it for sale right here!
Put up flyers wherever the target buyer clientele frequent — local grocery stores, local gyms, local coffee shops. Get old school.
This may take longer than auctioning or hiring an investor-specialist real estate agent, but it sure costs less. Consider this strategy if you're tight on cash (or equity) but have plenty of time.
5. The Great Lease Option Agreement
If time is definitely not of the essence, lease-option agreements are another way to sell without paying real estate agent commissions.
You probably know the term, but it’s worth a one-sentence summary: You sign a lease agreement with renters, who have the option to buy the property for a certain price within a certain period of time.
A relatively short period of time, mind you — otherwise, they lose all sense of urgency, and the property may appreciate well above the originally quoted price.
“Lease options and owner finance strategies provide cash flow and well as eventual large profits,” explains Matt Andrews, of REFreedom.com. “Creating passive income on the way to sizable gains is a beautiful thing!”
And sometimes, for whatever reason, the market just isn’t ripe for selling at this exact moment. Or maybe you’re not ready to sell — maybe you want to wait a year before selling to secure capital gains tax rates over regular income tax rates.
Movin’ on Up
Scaling your real estate investing business means taking on larger portfolios and more expensive properties. Read: bigger assets and higher risk.
The more exit strategies you have at hand, the better you can contain that risk. If you know beyond a shadow of a doubt that you can always liquidate your properties with no losses, then you’re operating in a world of all upside and no risk. Talk to other investors who have used these alternative exit strategies, get comfortable with them. Maybe even try one out on a low-risk property.
You’ll find yourself becoming the MacGyver of real estate — an escape artist, able to exit any property without taking a hit.
What alternative exit strategies have you used successfully? What have you struggled with in the past?
One investor’s story is another investor’s saving lesson…