Real Estate Success: Develop an Exit Strategy
November 14, 2013
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Finding Real Estate Success: Develop an Exit Strategy
This Rich Dad Education investing series discusses some of the variables that determine student success. Some people are simply going to be more successful than others. While this might be the natural order of things, Rich Dad Education wants to do everything within its power to put every student who participates in its programs in a position to succeed. Identifying the traits of successful students is just one way to accomplish this.
It is safe to say that successful Rich Dad Education students have well thought out plans. Specifically, they have carefully developed plans in regards to each investment they make. Not only do they have a clear plan on how to purchase the right property at the right price, but they also know exactly what they plan to do with that property once they own it. For those inexperienced in real estate investing, this might seem very simple. However, it is far too common for novice real estate investors to jump into purchasing a property with only a vague idea (sometimes no idea at all) of what they are going to do with the property now that they own it. Rich Dad Education students can increase their chances of success by not only obtaining the proper training on how to locate and purchase properties, but also by developing well planned exit strategies.
The Pitfalls of Not Developing Your Exit Strategy
When a novice real estate investor purchases a property without an exit plan, they almost immediately create an exit plan involving selling the property for an immediate profit. There is nothing wrong with this exit strategy but when it is created on the fly, these new real estate investors have often not done their due diligence. These new real estate investors usually have not gathered information on how long houses in their market are for sale and are not prepared if it takes a little longer than anticipated to resell the property. If your goal is to turn an immediate profit, then focus on properties that will be easy to sell once you own them and in areas that have the right demographics for an easy turnaround.
When a new real estate investor doesn’t immediately turn their new purchase for a profit, then their exit strategy can quickly change to holding and renting out the property. Since the exit strategy was not thought out in advance, they don’t necessarily have a property that is easy to rent, or the property may be in an area that makes property management cumbersome. They might not have experience or training in the area of property management and thus are prone to making numerous novice mistakes. Property management can be a wonderful strategy that produces high amounts of passive income, but it should be a carefully thought out exit strategy.
Even experienced real estate investors are prone to making mistakes from time to time so one should not be afraid of an occasional mistake. However, when you purchase a property without a thought out exit plan, then you are asking for trouble. Students who achieve a high level of success think through their actions and develop a plan around their knowledge, training, and expertise. It is exciting to buy the first couple of properties, but take the time to know what you are going to do with them once you purchase them.