Having an exit plan for your multifamily investment is critical to sticking the landing and earning that sweet, sweet ROI. If you clearly define your end game, you can set yourself up for success. But where do you even begin? Here, we’ll let you in on 5 proven, practical real estate investment exit strategies that might work for you.
Table of Contents
- Sell to Another Investor
- 1031 Exchange for Another Property
- Condo Conversion
- Refinance and Hold
- Joint Venture or Partnership Exit
- Transfer Some Involvement to Property Management
1. Sell to Another Investor
As property managers in Baltimore, we can tell you that selling your property to another investor is one of the most traditional, tried-and-true multifamily real estate investment exit strategies. It lets you capitalize on your property’s value, here and now. After all, your fellow investors are vying for properties that can generate steady income, and multifamily units fit this bill perfectly. By selling to them, you may be able to secure a quicker sale, and at a potentially higher price, to boot. Furthermore, this strategy frees up your capital so you can reinvest in other opportunities or diversify your portfolio. It’s a win-win!
2. 1031 Exchange for Another Property
A 1031 Exchange is one of the top tax loopholes for real estate investors out there. It’s like a “swap”—it allows you to sell one property and buy another without immediately paying taxes on the profit.
It works like this: You sell your property. However, instead of keeping the cash for yourself, you actually reinvest the entire amount into another property. Since you’re not keeping the profits, the government lets you delay paying capital gains tax on the sale. So, you can grow your investment without losing money to taxes or invest in a new one. It’s a legal strategy that investors far and wide use to build wealth.
3. Condo Conversion
Condo conversion happens when you take a rental apartment building and turn each unit into a condo that you can sell individually. Each unit gets its own deed, so you can sell them off just like any other property.
Sometimes, turning rental apartments into condos is smarter than selling the whole building in one go. By doing this, you can usually get a higher price per unit. This lets you maximize your property’s profit. Plus, you can sell units one at a time as the market changes. This approach also attracts a variety of buyers, like first-time homeowners and investors, giving you access to a bigger market.
4. Refinance and Hold
Holding onto a property with plans to sell later, known as the “refinance and hold,” is a popular real estate move. Instead of selling right away, you can go to the bank and swap your old mortgage for a new one, often with a better interest rate. By refinancing, you get immediate cash (equity from the property) to use on new investments. In the meantime, you can rent out the original property to keep the cash flow going. Then, when the time’s finally right, you can sell it for the best price possible. It takes some patience, but the rewards can be well worth it.
5. Joint Venture or Partnership Exit
If you want to stop being involved with a real estate investment but not completely end it, a Joint Venture or Partnership Exit might be a good idea. This approach lets you sell your share in a property to your business partner(s) or a new investor, rather than selling the entire property. Essentially, the new partner takes over your role, and the investment goes on without you. Many times, investors pick this method because it enables you to get your money quickly without disrupting the business.
6. Transfer Some Involvement to Property Management
Transferring your landlord responsibilities to a property management company gives you the best of both worlds: you can retain property ownership while putting the day-to-day burdens of managing it out of the equation. By outsourcing these responsibilities, you can free up your time and focus on other investments. However, you can still benefit from your property’s rental income and potential property appreciation. You can have more of the benefits without as many negatives.
Maximize Your Investment with a Well-Planned Exit Strategy
Multifamily real estate investment exit strategies like condo conversion, property management, and 1031 exchanges, give investors a clear route for moving forward. By carefully planning their exit, investors can ensure they cash in on their investment and make a smooth segue into starting new opportunities.
If you’re planning on going the property management route, Bay Property Management Group is here to help. We can handle everything from developing and enforcing lease agreements, to maintenance and repairs, tenant screening and relations, marketing, market analysis, and more. By getting these duties off your shoulders, you can have more time to spend on your next endeavors. And all the while, you can still enjoy a steady rental income and potential property appreciation. Contact us today to unlock new opportunities!
