When investing in property - or anything - it's important to consider what your strategy will be for exiting should you decide you no longer want to invest, or your circumstances change meaning you have to change your investment options. Without creating a solid and considered exit strategy, it could adversely affect your future investments and the profits you get out of these.
An exit strategy is, in its essence, a plan put in place to get you out of a situation that may become difficult. In property investment, it's a plan of how you will manage your investment portfolio should your circumstances change, and still make as much profit as possible. Having an exit strategy which is carefully considered and in place before you add a property to your portfolio will enable you to keep your losses to a minimum, or maximise your profits. Some of the most common strategies include: selling your properties, changing the structure of any loans, holding your properties and profiting off equity and rental income only, or passing it on to a designated partner.
Within the property industry, things can take a long time - for example, it could take months or years to sell one of your properties. Having a good exit strategy can ensure that you know in advance at what point you may need to sell to have the best outcome for your portfolio.
There are many reasons why an exit strategy is important to have as there are many things which can occur that can have an effect on your investment portfolio and can lead to changes needing to be made. One of the most common reasons that investors enter their exit strategy is their personal circumstances - whether that's down to age and entering retirement, or unexpected personal issues such as relocation, injury or illness, or family issues. Other investors exit strategies are based around economic changes - especially with Brexit talks continuing in Britain. Economic shift can lead to changed in interest rates which may take them to a level that's outside your budget. Or you may find that your property values don't rise as much as predicted and there are better options for your investment fund.
When is the best time to have an exit strategy? Now! You should have - or at least be considering developing - an exit strategy when you are looking to purchase. Within your exit strategy you should consider how long you would like to keep the property for; what kind of returns you would like; and what type of property you would like to invest in. Generally, it's better to consider holding on to a property for at least 10 years to start seeing a good growth in its value.
There are, of course, a number of things to consider when strategising your exit, including:
• Knowing your goals and what you want to achieve from your property - what kind of returns are you looking for; are you looking to have the property as long-term rental income after you have purchased, or are you looking to sell on quickly; what kind of property do you want to invest in - student, residential, commercial?
• Researching property prices and off-plan opportunities. It's easy when buying at an auction, for example, to overpay for a property. Exploring other options like purchasing property off-plan (usually apartments) can mean you're paying a lot less.
• Having a pot of 'emergency funds' can be an asset if you need to make changes to your investments, especially if you need to pay a sum immediately without being able to wait for funds to come into your accounts.
• Plan for the worst case scenario and always think ahead - where will you be in 5 to 10 years' time; how will this affect your investments; will you be getting married and having children, or maybe retiring? Planning ahead as much as you can will help you determine what kinds of unexpected payments you may nee to make in the future that will affect your investment portfolio. Planning for the worst case scenario can also ensure that you are as ready as possible for any eventuality.
With all things considered, and a solid exit strategy in place, it's also important to remember to review your strategy often - whether that's annually, or every couple of years - to ensure that your plan is still relevant and adapted to the changes that have happened to your portfolio and personal circumstances.