What Are Good Exit Strategy Ideas

Question

Quick question here! If I am trying to build a Commercial Real Estate Empire, would it be better for me to 1031 my properties into a larger complex, or refi the properties and use the cash to purchase a new property?

Joel Owens · Answer

If you refi you can't take out all the equity. If you sell you take out all the equity minus resale costs.

Before you even think of selling for a 1031 you need to know what you are buying. You need to be in agreement on expected returns for the replacement property and area. This is especially true if you are taking multiple properties selling and then rolling all of it into one property.

Larger complex are you talking retail or multifamily?

Stephanie P. · Answer

@Alexander Forrester

Real estate wealth is built over time, not over night.  Leverage your money as much as you can and accumulate as many as you can and let them pay for themselves over time; creating wealth monthly and equity over time.  Use the tax strategies at hand; 1031 exchange is an excellent example and then keep sticking and moving (was that Angelo Dundee).  If you dump one property for a larger and then a larger etc...your empire and thus your wealth will grow.  Sticking with one will not help you grow.

One girl's opinion

Stephanie

Alexander Zurn · Answer

@Alexander Forrester completely agree with @Andrew Johnson - it is subjective to the property and investor. How do you define a Real Estate Empire? By having many commercial proeprties?

If that is the case, 1031-ing into 1 big property will leave you with 1 big commercial property. Refi-ing multiple properties will leave you with a few properties you have equity in that you can take out to invest in a commercial property. Then maybe down the road sell them and invest those in another commercial property. So now you have 2 commercial properties.

Obviously, the Empire is a long term play but based on what I think you mean, buying multiple properties (at great deals) might be better in building an "Empire" down the road as you will have multiple properties, a lot of equity in each of them and assets for way down the road to sell (and perhaps 1031 then) to get you another Commercial property to go with the one you purchase with your equity.

Bill Exeter · Answer

Hi @Alexander Forrester,

There is no easy or "quick" answer here. It depends on your goals and objectives, and also depends to a great extent on the transaction and on the current market. There are lots of variables that come into play, and in some markets, some transactions and some cases one strategy might be better than the other. It depends on the opportunity that you are looking at, current market factors including interest rates, and whether or not a 1031 Exchange transaction better or worse position.

I think you first must define your goals and objectives and have a master plan so to speak, but then you must evaluate each transaction/opportunity as it presents itself and decide which is the best way to go at that point in time.

Jeff Kehl · Answer

@Alexander Forrester I agree to a certain extent with the above comments. It depends on how you define the success of your 'Commercial Real Estate empire'. People can define this by how big their organization is (even if unprofitable) or how many units they control (even if they have a very small ownership stake in them).

To me, only three things matter. 1) Total value of assets owned 2) Net worth after deducting debt. 3) Cash flow after deducting debt AND equity payments. The bigger these three numbers are the bigger your empire.

So how does this apply to your question?

Well, because those three numbers will grow the fastest based on a fairly simple formula.

The more assets you own, the higher return they pay and the higher you can leverage them without losing them the quicker they will grow.

Also the more assets you own the greater chance you will benefit from appreciation either real or due to inflation.

One caveat, tax rules complicate what should be a simple picture.

But in general, I will always hold onto a property/asset rather than sell it. I would take out additional money with a refinance and keep growing. But if the returns on that asset are low (usually because it has appreciated in value ) I will sell it and move to something with better returns especially if I can do it tax free with a 1031.

What Are Good Exit Strategy Ideas

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