What's my exit strategy?

Getting your hands on a good deal is definitely an accomplishment, but it doesn’t mean much if you don’t have a plan for what to do with a property once the keys are yours. Whether you plan to fix and flip a home or keep it as a rental for a few years, it’s important to know what your exit strategy is going to be before you ever buy the home. As discussed by Stephen Covey in his bestselling novel, 7 Habits of Highly Effective People, a key habit for both life and business is to begin with the end in mind. Beginning with the end in mind helps investors stay in the right mindset when making deals that could cost hundreds of thousands of dollars. The hustle and bustle of closing a deal is exciting, and pressure from lenders and title companies to close quickly can make it difficult to focus on the end goal of purchasing the property. However, it's crucial that you take the time to define your goals and how you plan to accomplish them with each purchase.

Many investors like to use Hard Money/Private Money lenders to get quick funding when competing with the market for the purchase of a property with plans to either sell the property before their loan matures or refinance to a conventional mortgage. This is a great plan on a high level, but it’s important that you know up front which option you are going to pursue. Otherwise, there is a high chance that unexpected conflicts arise between the time you enter and exit a deal such as increasing interest rates, slowing markets, or dings to your credit score. You also need to be aware of factors like extension and payoff fees as they aren't a huge deal if you are flipping a property but can become extremely costly for a rental. Many of the risks associated with real estate investing can be mitigated by planning your exit strategy before you ever purchase a home.

Not all risks are preventable, but a great option that some investors might not know about is the DSCR loan for borrowers looking to refinance their short-term financing into a 30-year fixed mortgage. DSCR loans are similar to Hard Money loans in that they are almost purely based on the merits of the property. A DSCR loan focuses primarily on whether the current income a property produces can cover the costs of owning it. That means you can fund and finance as many great rentals as you can get your hands on while you build your base of cashflow! Becoming knowledgeable about products like this, processes like the BRRRR Model, and the state of the markets you invest in will help you begin your deal with the end in mind while maximizing your potential income. At the end of the day, your goal should be to become as knowledgeable as possible so you know what to expect and look for when entering and exiting a deal. If you have taken the time to ask yourself this question, you can help ensure you aren't leaving a single dollar of profit on the table.