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4 Exit Strategies to Use with Multifamily Properties

Sep 5, 2008
A well-conceived exit strategy can mean the difference between a mediocre and a phenomenal success when it comes to your multifamily property. Take a look at the following four exit strategies to see which one will best suit your particular property and needs.

1. Sell and cash out. You can sell your property at a higher price and cash out. Find a buyer, sell the property, and get the equity as cash. This will give you freedom to do what you want with the cash, be it reinvest in some type of real estate or use it in another way.

2. Refinancing. You can go to the bank, refinance the property at its new increased value, and pull the equity out as cash to you. The refinance becomes a new loan, and there is no tax associated with it. Your debt service will go up, so you need enough NOI (Net Operating Income) to pay for it, but this is a way to pull your cash out when you need it. You could use that cash to go buy another apartment and do it all again. This exit strategy gets more units working for you. This process is called "capping out your property": increasing your NOI, capping it out to raise the value, and pulling your cash out either by sale or refinance.

3. Sell it outright using the 1031 exchange. You can sell your property outright using the 1031 tax deferred exchange by taking the money and rolling it into another property. The benefit of this exchange is that there are no tax implications on that property. As long as you're putting the cash into another property, there is no immediate tax consequence. You go through a middleman to do that because you, the owner, can't touch it. You must declare the property you plan to buy within 45 days and then close on it within 6 months. You'll find that 45 days is not a lot of time to find a property and get it under contract, so you need to have this plan thought through before you sell.

4. Wholesaling. Another exit strategy is wholesaling your property to another buyer. Keep in mind that when wholesaling, the better you communicate the potential of a property and how to make money with a property, the higher assignment fee you can get when selling that property. It will be much stronger saying, "I have a 50 unit apartment building that's currently at a 9 cap that could easily be at 11.2 cap if you did these things" as opposed to "I have a 50 unit property, do you want to buy it?" The more educated, empowered, and knowledgeable you sound the more value you bring to the deal whether you're going to hold it or flip it.

Again, your exit strategy will depend on many things, including where you are in your career and whether you're trying to expand your business or use cash for other reasons. But however you exit, make sure you're putting your assets to their best use.
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