As you structure your investment goals and review your investment strategies, don’t forget to think about your exit strategy. When a property owner is in the early stages of buying a piece of real estate, it’s easy not to consider an exit strategy. By the time you’re ready to sell and do something else, you can be at a disadvantage if you have not made plans for how you’ll proceed.
Think about your exit early; when you’re making decisions about what you’ll buy and how much you’ll charge in rent, and where you’ll make renovations and updates.
Even if you’re planning to rent out properties for the long term, you won’t be holding onto it forever. Whether you plan to sell one day or include it in your estate planning, get an idea of how and when you’ll let an investment go.
We’re exploring some exit strategies today that have worked very well for some of the clients we work with as Colorado Springs property managers. We’re also talking about how to sell your investment for top dollar when it’s time.
The Value of a Sound Exit Strategy
An exit strategy provides investors with a contingency plan. It helps you manage your risk when it comes to selling the property. Having a plan in place ensures maximum returns on your investment when you are ready to sell an investment.
But there’s another reason that your need an exit strategy, and that’s peace of mind. You want to know that your future is secure, especially if unexpected things happen.
Think about what might happen if the market suddenly suffers a downturn and you’re desperate to sell a property buy you can’t. You might not earn what you want on the sale of that property. Part of your exit strategy should be identifying the right time to sell for maximum profitability. You want to leave the market on your own terms.
Creating an Exit Strategy
How do you put together an exit strategy that’s likely to work well for you and your property? Here are a few considerations.
- Selling in the Colorado Springs Real Estate Market
If you decide you want to sell a property on the open market, you will need the support of a real estate agent or broker who knows the local market and the home values. The idea is to sell your property to anyone who is searching for a home. This could be another investor, in which having a tenant in place already could be beneficial. It could be to someone who wants to occupy the home, however, in which case you’ll have some details to work out with your tenant and your buyers.
- Private Sales
You can also construct an exit strategy around a private sale. Advertise the property and manage the entire process on your own with a buyer. This will require you to understand the legalities of the real estate market.
- Finance a Sale Yourself
An interesting exit strategy might keep you tied to your investment a bit longer. Owner financing is growing more popular as buyers struggle to qualify for expensive mortgages that give them little flexibility. This allows you to remove yourself from ownership slowly, and it can ultimately help you earn more money on the sale of your property. It’s also an excellent option if you’re renting your property to tenants who are interested in buying the home themselves.
- Auction Sales
If your exit strategy requires speed, an auction sale might be your best option. This is a good way to attract motivated buyers, and you can avoid long negotiations.
- Consider a 1031 Exchange
Maybe you’re willing to sell a specific property but you’re not prepared to exit the market entirely. A 1031 exchange can help you with your exit strategy by allowing you to purchase another property with the proceeds of an existing property. And, you get to defer capital gains taxes.
There’s no one way to exit. As long as you’re prepared and you understand why you’re leaving and when you’re leaving, good decisions can be made.
Selling Your Colorado Springs Property for Top Dollar
Ideally, you’ll sell in a market with a lot of demand and limited inventory. We are expecting mortgage rates to continue dropping, which means there will be more interest in the current Colorado Springs real estate market. As you’re preparing to exit and sell your property, study local market indicators. You’ll want to examine property values, competing homes, neighborhood development, and even rental rates.
It’s also wise to stay informed about broader economic indicators including employment rates, GDP growth, and changes in tax legislation that could affect property values and investor appetite.
Partnerships are extremely important when you’re planning your exit strategy and evaluating the market. You want to learn from others and see where they have succeeded and been challenged.
Prepare Your Colorado Springs Property for Sale
When you want to earn as much as possible on the sale of your investment property, you need to take some time to make it ready for the market. This is different from preparing it for the rental market. You’re targeting buyers rather than renters. Whether you sell to another investor or to someone who plans to occupy the home, you need to make a good first impression. Those first impressions count.
Before listing your rental property, ensure it is in top condition. Make any updates that will appeal to potential buyers and deliver a higher return on investment. This could include cosmetic updates like paint and landscaping or more significant upgrades like kitchen and bathroom remodels.
Selling with a tenant in place requires additional strategies. How can you exit a property that has a tenant living in it? First, consult your lease agreement. If you want to sell an empty property, you can provide an incentive for them to move out. A relocation fee can help. But, if you’re selling to another investor, that tenant may be an asset, especially if they pay rent on time and take good care of the property. If you’re selling to an investor, don’t forget to gather all necessary documentation about the property’s performance, including rental history, maintenance records, and any warranties that can be transferred to the new owner.
Effective Marketing Strategies Help You Sell for Top Dollar
To attract serious buyers, you need a strong and engaging marketing plan. You’ll want to invest in both traditional and digital marketing techniques to reach a wide audience. Our marketing tips include:
- Investing in professional photography. High-quality photos make your listing stand out.
- Syndicate your online listings to reach a larger audience.
- Use social media to share your available property.
- Open houses are still a great way to give buyers a firsthand look at your property.
Pricing your property correctly is part of a good marketing plan and will help attract buyers. Overpricing can deter buyers, while underpricing can leave money on the table. Make sure you’re pricing your property accurately and profitably. Be open to adjusting your price based on market feedback and prepare to negotiate offers around price as well as closing terms.
Negotiating for Top Dollar
Once you start receiving offers for your Colorado Springs property, effective negotiation can maximize your profits. Stay calm and professional. Emotions can run high during negotiations, but it’s important to remain calm and professional to achieve the best outcome. You also need to know your bottom line. Before you even begin negotiating, decide what you’re willing to sell for and which terms you’re willing to accept. Boundaries will help you sell for top dollar.
Respond promptly to offers and counter-offers. Timely responses to offers show seriousness and can encourage buyers to finalize their offers faster. If an initial offer doesn’t meet your expectations, make a counteroffer that is close to your desired price while showing willingness to negotiate. And remember that price is important, but also evaluate other terms such as closing dates, contingencies, and the buyer’s financing to ensure the offer is solid. If you’re lucky enough to receive multiple offers, use this to your advantage by informing all potential buyers and asking for their best final offer.
Rely on your real estate agent’s expertise to guide you through the negotiation process and to handle communications with buyers professionally. Talk to your property manager about what you’re offer as an investor to other investors.
Exit Strategies and Tax Implications
Selling a rental property can have significant tax implications. Capital gains tax, depreciation recapture, and state taxes must all be accounted for in your exit strategy. Consulting with a tax professional can help you understand these liabilities and prepare for what it will mean for your bottom line.
Let’s talk about your exit strategy, especially if you don’t already have one in place. If you’re thinking about how and when you’d like to sell, let’s make sure you’re selling for as much money as possible. We can help you with every step of this process. Please contact us at Muldoon Associates.
