5 Exit Strategies for Property Acquisition
by El Woodson, Senior Tax Lien Adviser
Tax lien investing can yield different results for different investors. Redemption can occur when either the property owner pays their delinquent taxes or if another investor files a tax deed application. You can also acquire the property by filing your own tax deed application. Although you might have a specific exit strategy in mind, it’s important to understand your options to ensure you receive the most out of your investment. If you’re new to tax lien investing or unfamiliar with all of the different exit strategies out there, don’t worry. We’ve got you covered.
Here are 5 Different Exit Strategies If You Acquire the Property
- Buy and Hold
- Seller Financing
- Rent to Own
1. Buy and Hold
The buy and hold method is great for investors that have acquired property in growing markets. This is most often used when vacant land is acquired. Maintenance costs on vacant land are typically minimal, and taxes expenses are usually low. If it is a rental property, the buy and hold option works because it is generating cash flow while it is building equity. When looking at a rental property in the long term, it will typically pay itself off through appreciation over time.
2. Seller Financing
This strategy can apply to either vacant land or an actual property structure. Seller financing can be an excellent method of exiting a property while continuing to produce a profit. This form of financing tends to be shorter in nature and often includes a balloon payment. In this case, the buyer and seller execute a promissory note including an interest rate and repayment schedule, along with a clause outlining the consequences of the buyer’s default. The seller financing strategy benefits buyers in several ways, but it also benefits sellers by producing monthly income, increasing their ROI through interest income, and spreading out their tax liability over a few years.
The 3rd exit strategy we will discuss is wholesaling. When considering using the wholesale strategy, we have to verify that the profit margin for both the seller and the buyer is profitable. This means you would list it below market value, but would still be making a profit on your investment. In a wholesale scenario, the property may or not have been rehabbed and it still can be wholesaled as long as the profit margins are there. This can be a faster and more efficient way to move on to your next investment if you’re looking for quick cash flow.
Flipping is a very common strategy and is widely used in the real estate world. When performing this exit strategy, the property is purchased below market value, usually rehabbed, and sold for a profit. This method typically produces the fastest and highest short-term profit. In the case of vacant land, the same concept applies as the investor will still purchase below market or at assessed value then sell at market value.
5. Rent to Own
With this strategy, the property owner leases to a tenant who has a contractual option to purchase the property. In some cases, a portion of the lease payment may be applied to the purchase price and allows the property owner to have a steady rental income for an extended period of time. Typically, it can be a 3 to 5-year obligation and is most attractive to first-time time home buyers who are not in a position to purchase a home traditionally. This can be beneficial for the seller as the amount for rent will be higher than a normal tenant due to flexible financing terms and tenants that are renting to own typically take better care of the property.
When it comes to exit strategies, there is no “one size fits all.” While you may be more attracted to the idea of wholesaling or flipping, limiting yourself to one niche can also limit your profits. Take the time to explore all exit strategies available to you and see where the numbers make the most sense.
5 Exit Strategies for Property Acquisition by El Woodson, Senior Tax Lien Adviser Tax lien investing can yield different results for different investors. Redemption can occur when either the property owner pays [...]