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Answering these questions will form your "Exit Strategy" for completing the deal. "Exit Strategy" is a term used by real estate investors to describe how they plan to sell a property and make a profit. A solid Exit Strategy will stand on three legs: knowing your needs as a buyer, knowing the seller's needs and knowing the property.

A well thought out Exit Strategy will guide all of your decisions regarding the deal. The first consideration should always be your overall goals and objectives with the particular investment. Put some thought into what you are ultimately going to do with the property. For instance, if your goal is to make some quick cash, then consider turning the deal over to another investor for a finder's fee. If you are looking at a longer term investment to build you portfolio, then you could spend some time, effort and money in fixing up the property for sale through retail channels. Remember to factor the upfront fix-up costs into your consideration of the deal in this case. Another option is hanging onto the property as-is for its future potential, or even living there yourself and moving it later. If your goal is to build a monthly residual income, then you might consider Lease Options or rentals.

The key here is having a solid plan for what you want to do going into the deal. Always know what you want to do with a property before you buy it, but keep your plan flexible enough to deal with changing needs in a changing market.
In developing your Exit Strategy, you should also consider the seller's needs. Knowing their needs and being able to consider them as part of your Exit Strategy can also affect the deal significantly. Is the seller a bank that needs cash or is the seller a private individual simply looking for debt relief. For instance, if you are looking to lease a property with an option to buy, bank owned properties are not good prospects because most banks are looking to sell for cash, especially when the property needs work.

Another key to building a sound Exit Strategy is to know the property you are about to acquire. Think about the highest and best use for the property. Evaluate whether the property is better suited for re-sale or rent. To know this, you MUST be constantly aware of the local economy. Keep a keen eye on the factors that can affect your ultimate profit. Things like the job market, interest rates and re-sale values of the neighborhood. All of these factors are drivers of the local economy that you will operate within. Also think about necessary repairs for the property. Knowing the extent of necessary repairs and knowing how to get that type of work done are also key considerations.

After the three legs of your Exit Strategy are in place, turn your attention to contingency planning. After all, we know that things never go down according to plan all the time. There are a number of variables to keep in mind with any deal. Choosing your partners carefully in the beginning will help protect your interests when it comes time to sell the property. If one of your investment partners wants out, how will you handle that? This can happen for any number of reasons, legitimate or not. You will need to consider this as a contingency to your Exit Strategy.

Other contingencies include reacting to declining real estate values, holding onto the property for longer than intended if you don't get as buyer right away. You may want to look at adding a second mortgage to help carry the investment, or perhaps refinancing the current mortgage to better accommodate your monthly outlay. Give some thought to these issues when setting up your initial financing. Getting yourself in an advantageous position up front could save a lot later if you find yourself needing to hold a property longer than planned.

Taxes are another consideration. If you buy investment property and make a substantial profit, you must pay tax on the gain. If this is the case, investigate a Section 1031 tax deferred exchange (also known as a Starker Exchange, Tax Free Exchange, or a Like-Kind Exchange). This tax deferred exchange allows an exception to the capital gains tax. If you sell investment real estate, replace it with a different investment property, and complete an exchange, you can defer payment of the capital gains tax normally required on these sales.

Knowing how and when you plan to get out of a piece of property begins even before you write the offer in the first place. As Steven Covey teaches, "Begin with the end in mind"; buying real estate BEGINS with a well thought out plan for your Exit Strategy!