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What is the best exit strategy for the buy and hold investor?

February 11, 2012

As a buy and hold investor, the question I keep pondering is – What is the best exit strategy? I am not close to exiting, but I think a lot of planning needs to go into how you are going to exit your rentals. I suppose this will be an ever evolving plan and will really vary depending on what cycle the market is in at the time of your exit. The way I look at it – there are a few options:

Sell your SFR and 1031 into Multi-family properties.  I see this strategy discussed all the time, but this does not sound like getting out. This will probably give you the highest ROI but it sounds like more headaches and work to me.

Switch into commercial property. You could also exchange into shopping centers or office space. The long term leases are attractive, but this is really outside my comfort zone right now. I feel comfortable competing against other landlords, but not sure how I would do competing against CB Richard Ellis and other large commercial property companies. 

Sell off your headache properties and use the funds to pay off your best properties. Just keep the ones that are easy to maintain and attract the best tenants. Get these paid off and enjoy the cash flow.

Keep renting till you die. This strategy is good if your kids or heirs have a passion for rental properties. I can’t imagine self managing my properties when I am 80, so at some point I will be turning over the keys to a property manager.

Flip them. When you are ready to exit, fix them up and sell them to retail buyers as they become vacant. Ideally if you bought the right properties you should be able to sell them to retail buyers. If you bought duplexes and quads, then you may only be able to sell to other investors.

Get them all paid off and sell them with owner financing. With this strategy you keep the monthly passive income, but you have dumped the day to day management stuff. This is my favorite strategy and should work well for someone looking to continue the income stream without all the work.

I feel you should have some exit strategy and I don’t think it’s ever too early to start thinking about it. In the end, the right answer is probably a combination of several of these depending on the market cycle.

 Related Post:

Why you must use Real Estate to diversify your portfolio

From → Planning

  1. I’ll probably sell half my portfolio (once I get 25-30 SFH) and just hold the nicer properties. Once I’m ready to walk away, I’ll probably sell the notes. However, I don’t manage any of my properties and I really like the way it has worked out. I probably spend less than 2-3 hours a month doing anything property mgmt-related. Most of my time is spent looking at deals, listening to podcasts or reading more RE-related stuff.

    Nice post!!

  2. Melissa permalink

    I will probably keep renting till I die, I have a 13 year old son and he is interested in RE Investing (and other things of course) he helps me scout properties, talk to tenants, is with me when I close the deals, etc. He would like to buy and hold when he gets older so I think I will just keep the properties in the family for him. I have amazing tenants so I have no need for a property management company as of yet and I hope it stays that way.

    • Melissa,

      Sounds like an ideal situation. What he is learning from you is critical. This is stuff he won’t learn in school or even at college. It will make him understand how to relate to people and run a business.

      Thanks for the comment and best of luck to you and your son.

      Take Care,

  3. If you buy commercial you don’t have to compete with CB Richard Ellis you can hire them to work for you. I am pretty scared to hold too much paper. I want to sell at the top or near the top and if you carried paper on your entire portfolio in 2006 you would end up with a huge foreclosure expense and owning most of it again.

    I will probably end up doing a combination of your 3 suggestions. I am already working on buying a class nicer property, so I can pay those off and keep them forever.

  4. Yeah, at the end of the day — I will probably end up flipping one or two of them and ideally owner financing the rest.

    The property class is something else I am always struggling with. My best returns are on my class C stuff, but the class of tenants I am drawing in my B properties really excites me. I want to switch to only buying B properties, but I keep viewing and making offers on more C stuff. Probably need to do a post on this topic…..[Your post on this topic is one of my favorites from your blog]

  5. Al Harris permalink

    I am 50 and just started out with 3 properties in Milwaukee WI, my goal is to get to 40 properties and rent till I die.

  6. Jeez Al – you should start a blog and write about this journey… I would enjoy reading about it.. Good luck..

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