Determining The Exit Strategy

Determining The Exit Strategy

Once we have our Maximum Allowable Offer, now the options start for what we want to achieve from the property and of course determine if we should buy it and at what cost.

I always like to have multiple strategies just in case plan A doesn’t work out. Our strategies include;

  1. Wholesale
  2. Wholetail
  3. Rehab
  4. Lease Option (rent to own)
  5. Subject To and then offer it as Owner Finance
  6. Buy, Rehab, Sell
  7. Buy, Rehab, Sell via Owner Finance.

Generally, the property fits into one of these categories. 1 and 7 are my favorite, but I have done them all. The one option that is obviously missing is “hold as a rental”. I don’t hold rentals anymore. Rentals are not for me. Although I am a real estate investor, I do not like to hold real estate as a rental.

The closest I come to owning a rental these days is either;

No. 4 – Lease Option where I manage the property for a seller, until the tenant buys the property

No. 5 – Subject To where I will sell the property “As Is” via Owner Finance

No. 7 – Owner Finance where I provide the finance for the buyer.

The common theme is these exit strategies is Owner Finance. The preferred strategy is where I act as the bank and I believe this is the best situation to be in. Get paid monthly without the property issues.

If we are going to Wholesale, then most likely our buyer has been identified even before we go see the house and talk to the seller. I have an extensive buyers list but I prefer to look after the buyers that keep buying from me time and time again. This is often why we rarely advertise properties we have available for wholesale. I have them sold during the contract period so I receive an assignment fee for the transaction.

We limit the number of properties we deal with at any one time, so if we have a rehab on the go or if we are short on available cash due to other purchases, then the wholesale option solves a number of issues.

Don’t get me wrong, I am more than willing to take on multiple projects at the same time but I am not willing to run out of money or have a property cost me for just holding it because we are trying to finish another property or raise funds. Been there, done that. Never again.

Lease Option

This strategy is very useful for clients that need to get out of their property but don’t have the equity or resources needed to sell on the open market through a real estate agent.

As an example, the house may sell on the market for $200,000 but their mortgage is $190,000 and the house needs a bit of work to achieve $200,000 therefore the seller needs to spend some money prior to listing. In this example, if the house sells for $200,000, the seller has to pay approx. 5-6% agent fees and will most likely have to contribute towards buyer closing costs approx. 2-4%. That is a minimum cost of $14,000. This leaves $186,000 to pay a $190,000 mortgage. Plus any costs associated with maintenance prior to the listing and anything the home inspector finds that needs to be fixed.

We can offer the property as a Lease Option and identify a Tenant/Buyer. This buyer will probably agree to purchase the same house for $210,000. They will pay an upfront non-refundable deposit approx. $10,000 and then pay market rent until they can buy the property using traditional financing. We always try to structure the deal so that when you take into consideration our fee and closing costs, the seller gets enough to pay off their mortgage without any out of pocket moneys required and the monthly rent covers the mortgage, taxes and insurance.

Further, we structure it so the tenant/buyer pays the majority of the maintenance costs so the seller is not burdened with any unexpected costs. Best of all, the tenant/buyer treats the home like it’s their own home because they fully intend to buy it. They have paid a $10,000 non-refundable deposit which most people don’t like to lose.

Subject To

This strategy is where we take over the mortgage payments for the seller. We become responsible for the monthly payment to the bank. The mortgage remains in place and the seller can not simply walk away and buy another house as they remain tied to the mortgage however, contractually Capable Home Buyers is responsible and makes the monthly payments.

We use this strategy when a home needs a light rehab and is a great candidate for an Owner Finance strategy. The light rehab could include paint, new flooring and whatever other minor items need to be attended to.

Owner Finance

Capable Home Buyers takes control of the property predominantly by buying the house. We perform the rehab and then offer the property out to a buyer. The buyer will pay a Deposit and enter a 30-year mortgage with Capable Home Buyers.

Typically, we work with Private lenders to fund these transactions however we also use money from banks and other long term financiers.

As an example of a transaction, we purchase the house for $100,000 and spend $40,000 on the rehab. Our total cost is $140,000. We would offer this home on the market for $180,000.

The buyer would pay a $10,000 deposit and the balance would be financed at approx. 6% for 30-years.

Capable Home Buyers would refinance the cost of $140,000 at approx. 3% for 15-years.

This transaction would result in a monthly margin for Capable Home Buyers and a cash profit of $10,000.

As we are acting as the bank, the buyer is responsible for every aspect of the house. We are simply the bank.

Emanuel Stafilidis

Emanuel opened Capable Home Buyers in 2019 just after moving to the USA from Australia with his wife Angela. The goal of Capable Home Buyers was to grow a small residential real estate portfolio to assist with retirement. Things are progressing very well and the business has grown larger then expected and is now a full time operation. Emanuel works full time from his Chesapeake home office and spends a lot of his time visiting people who want to sell their house.

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