What is the most common exit strategy for your portfolio ?
Cut losses for lemon property ? Renovated ?
As i look at the property profile, i noticed that the longer the property in the market, the prices was going down under market value. ( compared with apm valuation ) It really make me think what if, someday i wanna execute my exit strategy on my portfolio , consolidate and sold a couple, i might don’t get the same amount as my portfolio valuation since they were discounted.
On the other hand, i feel like i can jump on opportunity and buy under market value for stale property and put it back for rent as long as they are matching my buying criteria. Any opinion about this ?
Some would argue why you want to buy nobody wanna buy property ?You are correct that in a slow market a property may become stale and the price is reduced. This may or may not mean it’s a lemon property. You need to know the difference.
For example an acquaintance of mine listed her property for $519K against my RE agents advice to list it for $499K. It got a lower offer but it fell through due to an easement (no problem really). Anyway it went stale as it was over priced. Then she was in a panic (new house settling) so she dropped the price to offers over $450K and sold it that day for $447K. I was screaming as I would have bought it myself. It was a steal.
It needed a reno but basic. 3 years later it’s now worth $800K.So you need to know if it is a good buy or not. Maybe a property was grossly over priced in the first place so not a bargain. If you know the suburb and the prices then you are able to tell the difference and jump on properties when they are right.
Are you talking basic exit strategy or how to get rid of lemon properties? You need to way up the cost of keeping a property that is not performing.
But exit strategy as a whole depends on your goals. Some buy a huge portfolio and sell down to reduce debt. Depends on personal strategy.-
This reply was modified 10 years ago by
Catalyst.
I would like to keep all profitable property of course. However when I went to seminar they emphasised that you need to have exit strategy for your whole portfolio ( consolidate and keep some outright ) and exit strategy for every purchased ip if somehow situation was changed. ( interest rate rises, stagnant capital growth, deserted suburb , fire etc )
Exit strategy for every purchased ip is kind of hard. If we end up with lower price then I have no chance to mitigate the losses. Selling property depends on market and buyer. We can’t control them. So any clever ideas about it?
Sorry for asking silly question but if I wanna put myself in huge debt – I need to know how to get out of it.
I wouldn’t ever do it on gut feelings like some people did.If you think the property is going to go down in price why would you buy it.
What’s hard about it? Buy a property that fits your criteria ( for example- not too negative with CG potential). Of course you need to think what your plan for it is otherwise why buy it? Will you keep it for the long run, reno and sell?, subdivide? That’s what they mean.
Win I think you are over analysing everything. You can’t listen top what EVERYONE tells you. I made that mistake and missed out on a few good properties. I was looking for properties that filled everyone’s criteria. Everyone has a different buying philosophy and you can’t have it all.
Some people buy close to the CBD, some buy new, some old and renovate, some for cashflow.Don’t get caught up in the research and never buy anything.
Hi Wiwin,
Exit strategy for every purchased ip is kind of hard.
I think the real reason for the seminar to mention this is because we don’t automatically think of this when buying things – at least, not to any depth. e.g. when you buy a new handbag, do you naturally think “This will do me for just one year, then I will pass it on to St Vinnies” or, if we buy a new car, we might have in the back of our minds “Ah, this will do me for 5 years, and then I’ll buy another one”. We don’t really think about HOW to get rid of the old one, how much it might be worth then, where would we sell it, etc.
With a purchase as expensive (and immobile) as a house, it is worth thinking this through before buying. Even if your plan is Buy and Hold, events may happen that might change this intent, and it would be good to have already considered what to do before it happens. Like, you might leave the country suddenly, and want to take all of your assets with you – unplanned, but that’s life. Take the time to think through “What would I do if I had to sell it quickly?” before you buy it, and maybe watch the markets for peaks and troughs, in case it suddenly becomes useful to take a profit to get into something completely different.’
I think the process of thinking about the exit is just so that your subconscious mind can be “doing its thing” as you live your life. Having previously thought through the process, your mind will be triggered when you hear of someone selling their place in your area, and you might want to revisit whether Buy and Hold is still the right thing to be doing.
See, over time, Councils change their bylaws, and Govts change laws – any of which can affect your investing. You don’t know today what may change tomorrow, but if your subconscious is aware “You might need to sell one day” then you can go about your life, knowing that you have it covered if you did need to sell.
What if you lost your job right after buying an IP? It probably won’t happen, but it could – so be sure to consider just what you would do BEFORE buying it. Would you take a loss to move it quickly? Do you have an alternative job in your mind? Do you have sufficient savings to “ride the storm” for six months? Can you alter the use of the place to make it MORE attractive to buyers so it will move quickly?
It is probably also a part of getting Finance – when you take on finance, you must have a way of paying it back !!
Benny
Great points Benny. My strategy when I started buying was to only buy it if I could sell it the next week and lose no money.
It was tricky but it was a buyers market so possible. I had to buy under market in order to cover buy and sell costs but it was a good guide for me. A few properties I did a reno straight away and could have sold for a profit after the reno (5 weeks).
I like the philosophy that every purchase should get you closer to your goal.
If you buy well and have to sell earlier than expected it shouldn’t be an issue.
First one always hard. I never think about exit strategy for every ip too until I went to seminar. Sometimes they got me confused instead of guiding me. I think I better stick to your last comment if we buy well and have to sell ealier it shouldn’t be an issue. Thanks Benny, I will take a note on your advice.
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This reply was modified 10 years ago by
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