Always Have an Exit Strategy Before You Buy a Rental Property
When you begin with the end in mind it means you have an idea of how you want any rental property purchase to turn out AND you have also thought through alternatives should your ideal result not happen.
In other words, before you buy any property, have alternative exit strategies that will work for you just in case your original plan does not work out.
And recently we discovered just how important that is when we found ourselves with a property we'd purchased for our lease option program was without a tenant buyer after several months of advertisements.
Furnished with the previous owners white doilies and relaxed retirement decor it didn't have mass appeal.
After three showings we didn't have a single application.
Once the sellers moved out, we brought in a painter to give it a fresh look and hired a cleaner to get it shining from top to bottom, but we found that we'd lost momentum.
The dozens of people that had rushed to us before were down to odd couples here and there, but at least once it was vacant we began to get some applications.
We spent another month showing it.
We accepted two different applicants but they both fell through before a final deal was done.
Now, with a rather limited amount of interest in the home and the first mortgage payment looming, we decided to implement plan B.
I whipped up a Craigslist ad to put the property up for rent as a regular rental.
Within 5 minutes of posting the ad to Craigslist the phone calls began.
5 days later we had tenants moving in.
Plan B worked beautifully - probably even better than we had hoped.
But the key to this story is that we actually had a Plan B.
We had hoped we would find a tenant buyer for our lease option but just in case it didn't, we had a Plan B and even a Plan C for this property.
We had more than one exit strategy.
We are giving up a bit of the monthly cash flow because we're renting it for about $200 less a month than we would have in our rent to own program BUT we aren't giving any rental credits so our overall return (and that of our joint venture partner) doesn't really change that much.
And the big benefit to us is that we're getting someone in there right away - before we have to put money in to cover any expenses out of our own pockets AND the rent the property generates is high enough to cover our expenses with a small cushion of positive cash flow.
Even if this option hadn't worked out for us - we had enough equity in the property because we purchased it for $25,000 under market value - that we could have turned around and sold it and still netted a few thousand dollars (or more if we chose not to use an agent).
That was Plan C.
So my lesson for all investors buying properties is to ensure that you have more than one exit strategy before you buy a rental property.
If you're planning to flip a property after renovating, run the numbers to see if it would work as a rental if you aren't able to sell it for a good price.
If you're buying a property to put tenants in, make sure you have other options for the property (like resale or lease option or moving in yourself for awhile) if your original plan isn't working out like you'd hoped.
In other words, before you buy any property, have alternative exit strategies that will work for you just in case your original plan does not work out.
And recently we discovered just how important that is when we found ourselves with a property we'd purchased for our lease option program was without a tenant buyer after several months of advertisements.
Furnished with the previous owners white doilies and relaxed retirement decor it didn't have mass appeal.
After three showings we didn't have a single application.
Once the sellers moved out, we brought in a painter to give it a fresh look and hired a cleaner to get it shining from top to bottom, but we found that we'd lost momentum.
The dozens of people that had rushed to us before were down to odd couples here and there, but at least once it was vacant we began to get some applications.
We spent another month showing it.
We accepted two different applicants but they both fell through before a final deal was done.
Now, with a rather limited amount of interest in the home and the first mortgage payment looming, we decided to implement plan B.
I whipped up a Craigslist ad to put the property up for rent as a regular rental.
Within 5 minutes of posting the ad to Craigslist the phone calls began.
5 days later we had tenants moving in.
Plan B worked beautifully - probably even better than we had hoped.
But the key to this story is that we actually had a Plan B.
We had hoped we would find a tenant buyer for our lease option but just in case it didn't, we had a Plan B and even a Plan C for this property.
We had more than one exit strategy.
We are giving up a bit of the monthly cash flow because we're renting it for about $200 less a month than we would have in our rent to own program BUT we aren't giving any rental credits so our overall return (and that of our joint venture partner) doesn't really change that much.
And the big benefit to us is that we're getting someone in there right away - before we have to put money in to cover any expenses out of our own pockets AND the rent the property generates is high enough to cover our expenses with a small cushion of positive cash flow.
Even if this option hadn't worked out for us - we had enough equity in the property because we purchased it for $25,000 under market value - that we could have turned around and sold it and still netted a few thousand dollars (or more if we chose not to use an agent).
That was Plan C.
So my lesson for all investors buying properties is to ensure that you have more than one exit strategy before you buy a rental property.
If you're planning to flip a property after renovating, run the numbers to see if it would work as a rental if you aren't able to sell it for a good price.
If you're buying a property to put tenants in, make sure you have other options for the property (like resale or lease option or moving in yourself for awhile) if your original plan isn't working out like you'd hoped.
