What exit strategies to use?

Question

Hi, everyone—I’m relatively new at REI & I’m still learning about the ins & outs of various exit strategies. I’m interested in rehabbing & buy/holds (the latter especially for long term), and I’ve marketed via yellow letters, calls, networking, bandit signs, etc.

Can someone break down which exit strategies work best depending on a seller’s situation?  There are so many that it gets a bit confusing.  For example, in which cases would short sales, subject-tos, lease options, straight-cash offers, etc. work best? (Of course, if I’ve missed any feel free to add those, as well.)

This way, I can better know how to figure out which options to offer an interested seller. Thanks!

Vonetta Booker · Answer

Yes it does, Paul--thanks!  Your breakdown will help me ask the right questions when I'm on the phone with sellers and better figure out what kinds of offers to make.

And thanks for clarifying acquisition vs. exit strategies. :-)

Paul Danieli · Answer

Hi Vonetta,

I think those are called acquisition strategies.  I can offer a few examples of when it's good to use one over another based on the seller's situation (and your own objective of course). . .

Short Sale - the seller owes more than the home is worth and is in danger of foreclosure.  You or someone would need to negotiate with the lender to reduce the debt.

Cash Offer - Seller needs or wants to get out quick or the house needs lots of repairs that would need to be done before a bank would lend money on it.  You would want to offer cash for a house you wanted to flip or wholesale, because you are more likely to get the best price that way.

Subject to - Seller needs to be willing to allow you to take ownership of the property just because you agree to take over payments on his or her loan.  They need to be highly motivated (like facing foreclosure) for this to work.  Of course, they can also be compensated for this, so if you can give them something that they really need, like a little cash, they might go for it.  You would need to be ready to sell it quick or refinance, because the lender may call the loan even if it was not delinquent and start to foreclose.

Lease Option - Seller has been trying to sell for a while w/ no takers and they've already moved into a new home.  You should be able to make a lease option look pretty good to this seller, right?

BTW, an exit strategy would be your way to get out of the deal with a profit.  Examples of this would be to sell for fast cash profit or lease for passive income and sell later.

Hope this helps