How do you determine your exit strategy?

Question

As I'm learning and building my multi family operator experience, I'm curious to know how experienced investors/operators detemine their exit strategy for a property?

If your exit strategy is to refinance after 3 or 5 years, what do you do if this isn't a viable option?

Interetsed Interested in hearing how seasoned investors have weathered the storm and navigated difficulty exiting a deal.

Thanks!

G. Brian Davis · Answer

Hey @Cordero Abdullah, great question. The best operators don’t just have one exit strategy, they have several. A refinance or sale in year 3-5 is nice if the market cooperates, but you have to ask what happens if rates stay high, cap rates expand, or lenders pull back? I meet with operators regularly to vet deals, and this is one of the biggest things I press on. I want to know whether the deal can survive being held longer than planned, whether the debt gives enough runway, and whether the property can still cash flow if the exit gets delayed.

Greg Kasmer · Answer

@Cordero Abdullah - Yes, I should phrase it correctly.... On the residential side it's typically a HELOC in a second position (assuming you already have a first position lien with a mortgage). On the larger commercial/multifamily side it's typically called a supplemental loan. They function in a similar capacity to recoup capital, but both require a substantial of equity in the asset. Good Luck!

Greg Kasmer · Answer

@Cordero Abdullah - Typical exit strategies are to either sell or refinance, but I've also seen some operators put a secondary loan on a property to regain capital. What are your thoughts?

V.G Jason · Answer

You don't look for exit strategies that are time-based. If you are sitting on a clock, don't invest. Or understand what's at loss.

You need multiple exit strategies; the ideal one being a very long term hold.

Cordero Abdullah · Answer

@G. Brian Davis thank you !

Cordero Abdullah · Answer

@Greg Kasmer got ya! Thanks Greg

Cordero Abdullah · Answer

@Greg Kasmer secondary loan?

How do you determine your exit strategy?

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