A Quick Guide to Private Equity Exit Strategies

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The only difference between real estate investment and other investments is the significantly bigger stakes. You require depth charts fit for an NFL club and backup plans. Every business plan for a real estate investor should include an exit strategy.

As an investor depends on selling a property (or an exit) to generate revenue, they need to get ready with private equity exit strategies. It’s crucial to understand when it makes sense to sell an investment, even if the investor’s business goal is to retain the property to generate passive income, whether the reason for the leaving is financial, personal, or professional.

Different Equity Exit Strategies for Real Estate

Wholesale

Real estate wholesaling is the practice of one investor selling another investor a property at a profit. They serve as a go-between for a seller and an end consumer, typically making money as a wholesaler with an assignment fee. This exit strategy is essential when a real estate investor purchases a reduced property from a seller who needs to sell it soon. The investor next locates a buyer prepared to purchase the property for a little premium. Ultimately, this tactic enables the investor to enter and exit a contract fast, with little risk, and at a profit.

Fix and Flip

House flippers employ this exit strategy to buy a home that needs work for less than market value, fix it up, and then resell it for a profit. Similar to the wholesale exit approach, this involves rehabilitating the property before reselling it. If done correctly, it is one of the real estate exit methods that may generate the highest profit margins. Fix and flip is riskier because many variables might affect your repair budget and schedule.

Buy and Hold

Just like fix-and-flip, you renovate a property to raise its value, but rather than selling it, you keep it to rent out and generate monthly income. Several books on this leaving method are called the BRRRR method. This is a common real estate investment exit plan for people who want to increase their equity in an asset but are ready for the additional duties of being a landlord.

Cash-Out

Cash-out refinancing includes replacing an existing mortgage with a new one with a higher balance. This might offer you more funds for upgrades, maintenance costs, or even to pay off other debts.

Acquisition

One of the common exit strategies for a private equity fund is to sell its real estate holdings to an acquirer. The acquirer should be another PE or REIT fund, but it could also be a strategic buyer (e.g., an industrial company) with a strategic interest in that industry or geography. A strategic buyer will likely pay higher premiums due to the synergies between their business and your properties’ locations.

For the acquisition to work out well as an exit strategy, there must be at least one other bidder interested in purchasing your portfolio. So if you want this route, you must ensure that other buyers are interested in buying your portfolio before selling it off.

Conclusion

Your private equity exit strategies are the road to good real estate investment planning. Exit plans for real estate investments are not universal. When selecting the exit plan that works best for your short- and long-term objectives, there are several essential aspects to consider. Many of those elements, such as market condition, property location and value, purchase price, and supply and demand, may be discovered by conducting your study using rental comps.

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