If the economy were static, investment planning would be easy. The reality is that markets shift throughout the economic seasons. Savvy investors rely on hard money exit strategies as one way to respond to the market.
Quick Summary
- Diversify your investments. Real estate is a solid investment, but it’s important to consider liquidity.
- Plan ahead. Have an exit strategy in mind when you invest in real estate.
- Have a plan B. Always have a backup plan that allows you quick access to capital.
- Know your options. Add hard money to your list of potential exit strategies.
Liquidity in Real Estate
Even the most valuable real estate portfolio can be impractical if you can’t sell the properties at the desired value, or perhaps not even at all. If you have time to wait for market cycles, this isn’t a problem, but if you suddenly need quick access to cash, or if the economy has shifted in a way that is counter to your exit strategy, you need a different plan.
Common Exit Strategies
Some of the common paths for cashing in on your real estate investment include:
Selling the Property
Selling is always an option with real estate, but it might not be the best option, especially if the market has turned. If your property has lowered in value and you don’t have time to wait for the market to swing, your intended investment could end up being a loss. It might also take a long time to sell the property, especially if interest rates are higher or if other market conditions have changed.
Refinancing
Work with a lender to get a new loan that allows you to access cash from your real estate equity. Be aware that this process takes time because it requires a credit check, appraisal, and all the other steps required to get a traditional loan.
Transitioning into a "Buy and Hold" Strategy
You can hang on to properties and rent them out for ongoing passive income. This requires an investment of time and money to manage and maintain the property. You might also have initial expenditures to get a property into a rentable condition.
The Importance of a Backup Plan
Having multiple exit strategies (i.e., plan A, B, and C) is critical for mitigating risk. If you plan to sell to fund your retirement, the market might not be in your favor by the time you’re ready. If you plan to buy and hold, you might discover there are not enough tenants willing to pay the rent you require to meet your financial goals.
Many of these plans also take time, but sometimes circumstances change such that you need to act quickly. If this happens, where will you turn? Hard money can help you bridge the gap.
Bridging the Gap with Hard Money
Hard money—private financing backed by equity—acts as a bridge to stabilize a project before permanent financing is available. You can also use hard money to buy a new property before selling an existing one, or improve a property to make it appealing to renters. Additionally, when a note is coming to maturity, you can use hard money to buy time if you don’t have the funds readily available.
Hard money loan repayment might cost a little more in the short term, but bridging the gap with hard money allows you to keep the real estate in your portfolio, rather than fully exiting.
Cover Your Bases with Socotra Capital
Hard money exit strategies allow you to access cash faster than traditional banks, especially during times of market volatility. Socotra Capital has the industry expertise, local presence, and personal relationships to be your safety net.
If you need a safety net now, apply for a loan today. If you just want to make sure your bases are covered in the future, we’ll be here when you need us.
