Understanding Property Exit Strategies – Dr Ro Shares His Mistakes

Enhanced Transcribe:

Dr Ro here, and today I’m sharing property exit strategies and mistakes that I’ve made. 

I don’t know if you can see, but I am literally in the middle of nowhere in the ocean here. And I thought I’d share something with you that’s really interesting that I discovered when I was looking at property investing for the first time and trying to get my head around what to do.

Our first property we bought was a single strategy.

It was basically buy and hold in a capital growth area and this is the message I want to get across is, most people only have one exit strategy. 

So if you’re watching this right now or looking to get into property one of the first things to be aware of is you must always have two exit strategies.

Ideally you want more than that exit. But what I mean by an exit strategy is a strategy for example is buy, hold and sell for profit. That’s one strategy. The exit for that is to sell for profit.

Another strategy is buying and renting out to a family for income, that is another strategy. But that’s also an exit strategy, so I’m buying property to rent it out and the exit is to get an income from it.

Another strategy that people have is to buy and hold for capital growth and hoping that in the future they’re going to get capital growth increase on their property. And that way they’ve got an exit strategy to sell in the long-term for capital growth.

And that’s three examples of exit strategies. There are many exit strategies. Even with the income strategy there are multiple exit strategies. The mistake people make is they will buy a property in the south of England as an example, or wherever you are watching this. You’ll have a part of your country that has high capital growth areas. But often where there is high capital growth you’ve got high value, where there is high value you have low yield. Where there is low yield you have no income. The only way to get income from the property is to put a lot of money down on that property, reducing your mortgage and hopefully increasing your income.

The problem with that in some cases is even if you put a lot of money down there might not be enough rent to support the mortgage you have on it. Or if you’ve bought a property for example off plan, which we will talk about in another video. It might be that you have an outgoing cost that exceeds your incoming, rental income. 

So in the changing market you must have the ability to use multiple exit strategies. For example let’s say you’re buying a property and you want to sell to generate a cash flow. Now let’s say for example you want to buy a property and sell it to generate profit for cash, are you having to abort and market conditions have changed slightly at the end of the time you have finished renovating it. And it’s harder to sell than you thought so you should have another exit strategy. 

A classic exit strategy would be to rent the property out. But if you haven’t done your numbers right and you decide you want to rent it out but you can’t get a rental income high enough to give you a cash flow to sort the mortgage, you are in trouble. 

So you must always run the numbers on at least two exit strategies. What profit would I make if I sold it? Maybe it’s £45,000. What profit would I make if I rented it? I might make £400 a month. And that way I know I’ve got my exit. If I can’t sell, I’ll rent.

If I can’t rent it for the next year to two years, when the market picks up then I’ll sell it.

At least during the sale period whilst you’re waiting you’re renting it out for cash flow.

So the message from this one is the mistake would be only having one exit strategy.

Hopefully that helps, remember any property investment you buy makes sure you’ve got at least two exit strategies. 

Disclaimer: This video or written publication does not offer investment or financial advice and nothing in them should be construed as investment or financial advice. Our publications provide information and education only. The information contained in our publications is not, and should not be seen as a recommendation to use any particular investment strategy. Always seek financial advice from an independent financial adviser around your own personal financial situation.

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