Residential Agent And Investor · Scottsdale, AZ · Member since 2013 · 212 posts · 83 votes
If I'm buying a duplex in an area with 5% vacancy at or a little below FMV, but both units are rented when I buy it, should I be too concerned about what my exit strategies are? I understand the importance of exit strategies when flipping, but am curious what one would like for buy and holds. Thanks
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Buy and holdIS an exit strategy.
When you acquire a property an exit strategy is "what are you going to do with it?" Wholesale it, renovate and sell, or keep it for rental income are exit strategies. When you buy and hold you can take it another step becuase how you finance it is an issue. You could buy with hard money and refinance once stabilized with a tenant in place, so that would be your exit strategy.
The point of thinking about exit strategy is simply you need to know what you are going to do with the property because that will affect what you pay and how you structure the deal.
As an example, I am planing to buy a 5 unit property. The idea is to find a private lender who will loan the money for acquisition and minor repairs. The goal is to keep the property. Once the property is stabilized and fully functioning we would then refinance the private lender out and get lower rates from a traditional lender. Our plan B is to sell the property if we cannot get refinanced. We figure the property should be worth about $100K more than we will be into it for. So our exit strategy is to refinance and keep it or sell it as plan B.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Buy and holdIS an exit strategy.
When you acquire a property an exit strategy is "what are you going to do with it?" Wholesale it, renovate and sell, or keep it for rental income are exit strategies. When you buy and hold you can take it another step becuase how you finance it is an issue. You could buy with hard money and refinance once stabilized with a tenant in place, so that would be your exit strategy.
The point of thinking about exit strategy is simply you need to know what you are going to do with the property because that will affect what you pay and how you structure the deal.
As an example, I am planing to buy a 5 unit property. The idea is to find a private lender who will loan the money for acquisition and minor repairs. The goal is to keep the property. Once the property is stabilized and fully functioning we would then refinance the private lender out and get lower rates from a traditional lender. Our plan B is to sell the property if we cannot get refinanced. We figure the property should be worth about $100K more than we will be into it for. So our exit strategy is to refinance and keep it or sell it as plan B.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
8y
@Travelle Mason because a traditional lender may not be willing to make the type of loan you need or perhaps not even any loan against the property.
In the example I gave above the property needed work and was vacant. A traditional lender would not loan on it. We would have to get some type short term construction loan. Once the property is a proven cash flowing performing rental, then a more traditional lender with lower interest rates will be willing to refinance.
Rockville, MD · Member since 2018 · 93 posts · 28 votes
8y
Oh wow. Based on that info, I am going to have to reach out to my mortgage broker. I may have to re-strategize my search approach. Some of the properties I have been looking at would require some work, and if I can't get them financed then I am wasting time. Thanks for the tip @Ned Carey!