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What Is The Best Exit Strategy: Long Term vs. Short Term

 

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You should never close a real estate deal without knowing your exit strategy options.

 

You need to know both best and worst case exit scenarios.

In this video, I’m going to discuss Long vs. Short term investments and why you should be doing both types in order to have a balanced, profitable business.

If you don’t do these things, you will be leaving a ton of money on the table.

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Read Transcript for “What Is The Best Exit Strategy: Long Term vs. Short Term”

 
Having an exit strategy and knowing whether your exit strategy is going to be long term or short term is very important as you’re analyzing deals. Here’s how to analyze deals and figure out what your exit strategy should be.
 
Joe: You have to figure out why you’re analyzing the deal; what is your exit strategy going to be? How are you going to make money on the deal? And this video is going to be about long term versus short term investments. Is this going to be a long term investment for you? Are you going to keep it for a long time? Or is it going to be short term? Do you need cash now? Do you need to flip that property? If you’re going to have a real estate investing business, you’re going to need both.
 
Joe: The first thing you need in any real estate investing business is cash flow. So you need to do short term investing to start with so that you have money coming in. No business is viable without cash flow –without money coming into you every single day.
 
Joe: What you have to do first is create a stream of deals that are coming in constantly (and we do this using the Push Button Method techniques I teach). If you create a stream of deals coming in all the time, and do short term flip deals, you’re going to have chunks of cash. It’s good to have income coming in all the time for the long term investments where you’re making a few hundred dollars a month from every deal that you’re doing, but you need to make $1,000 to $10,000 deals instead and do quick flips and make them happen quickly, without having to use your money and without having to use your credit. These are the things that I teach in my training programs; how to do that and make it happen quickly.
 
Joe: If you’re analyzing a deal, you need to look at it and say ‘How am I going to get rid of this property? Do I have to sell it for cash or am I going to be able to sell it on terms?’ If you can sell it on terms, it’s always going to sell faster than if you could have sold it for cash, even if you lower the price. Even if you sell it on terms and raise the price, you’re going to be able to sell it faster because it’s on terms – there’s a lot more people that can buy a property if they don’t need much cash and they don’t need much credit.
 
Joe: These days, loans have become every very difficult to get, so I don’t do much at all where it requires my buyers and my end users to go out and get loans. It takes too long to sell those properties. I want properties that I can sell quickly.
 
Joe: There are two types of deals that I’m looking for. One, the short term flips that I can sell to an end user on terms and make a chunk of money, like we do with the “For Rent Method”. We’ll take a property, get it under contract from another owner to where we have an option to buy it on a lease option, and then we sell our right to buy it on a lease option to another lease option buyer. That lease option buyer pays a lease option fee to us and we keep the lease option fee. The first month’s rent goes to the seller, and the seller gets full price for the property.
 
Joe: So it’s a win-win-win deal. Somebody who could not have bought a property gets to buy a property – their credit might be bad or they may have some issues with their other income but they have enough to make their payments. They get a property they couldn’t have bought otherwise. The seller, who may have had a hard time selling that property, is able to sell that property and get somebody in it that’s making their payments for them, and help stop the bleeding of that mortgage payment going out every month. And, we make money because we just got the lease option fee. We’ll make $2,000 to $10,000 on a quick flip like that. It may only take us two weeks to put together and 8 to 10 hours of actual work to do. That’s how the “For Rent Method” works. Those are very short term, quick deals.
 
Joe: The other type of deal that we’re doing is taking them subject to the existing loan. I talked about that earlier on deal structures in one of the earlier videos. We take a property subject to the existing loan, we have the deed to the property, and then we sell that property on a lease option to somebody who’s in a weaker position. We’ll take a lease option on it and a monthly payment. That monthly payment will help us make the payment to the mortgage, which will give us a long term investment value (we’re going to talk about some of the other things that it brings as well later). So, we get that short term chunk of money; it’s the best of both worlds.
 
Joe: Eventually, you’ll want to do both of those things. But you want to make sure that the property that you keep and buy “Subject-To” is a good deal. It doesn’t make sense right now to go to California and do Subject-To deals.
 
Joe: Let’s say you have a property that they’ve bought for $500,000. It’s now worth $350,000 a few years later. The values have dropped dramatically. Let’s say they owe $500,000 on this property and they’re paying $3,500 a month but the market rent on a property like that is only $2,500 a month. We can still make money on a deal like that and still solve the problem for the buyer and the seller, or at least part of the problem for the buyer.
 
Joe: We can get the buyer the $2,500 a month of income that they need, so that instead of having $3,500 a month going out, they only have $1,000 a month going out every month because they have $2,500 a month coming in from a tenant. They can sell it for full price at $500,000 or even more than its market value because we’re selling it on terms. Our buyer comes in and gives us $10,000 or $20,000 as a lease option fee to take over that property and become the owner of that property. They’re getting it at $2,500 a month instead of a payment of $3,500 a month, which is what they would be getting if they were getting the mortgage, so they’re getting a good deal.
 
Joe: They’re getting to call it home and if the values go up during that five year period period (because we’re doing a longer term lease options on these types of deals – five years instead of two or three which is what we do in the Midwest) and they want to buy it, then they’re able to, and if they’re not, during the time that they own it, they’re the owners of that property.
 
Joe: Just like you – if you go out and get a mortgage on a property down the street from you and you live in that house, you call it your home; you’ve fulfilled the American dream and you feel like, ‘Okay, this is my house’. It’s not your house; it’s the mortgage company’s house. Your name happens to be on the deed and that’s fine, so you have principle ownership in that property and you have the right to the use of that property.
 
Joe: That’s the way we’re selling it to them on a lease option – giving them the right to own that property, the right to live there, the right to take care of it, and the right to be the homeowner. And that’s worth an awful lot of money to those folks. So when we provide that opportunity it really makes sense for them.
 
Joe: That’s the short term money we can make. If we look at that deal and say, ‘This is how we’re going to make short term money. We’re going to use some of these structures where we can flip these properties, and whether we’re going to sell it for cash or on terms, and we can still make that short term money.’
 
Joe: Now, if we want to make long term money, that’s going to be important as well. Let’s say I’m taking money out of my Roth IRA. I have a bunch of money in there that I’ve made over the years that I want to invest, so I go out and buy properties. Right now, there are some areas in the country where you can buy properties. Indianapolis is one of them.
 
Joe: There’s a bunch of other places like this where you can buy properties really cheaply. For $25,000 or $30,000, you can buy a property that will have income of $800 or $900 a month, compared to just three years ago where that same property would have gone for $70,000 to $90,000. But the values have dropped because there have been so many foreclosures in those areas. And these are mostly blue collar areas. You probably want to stay away from warzones. They’re not the nicest area in the city, but they’re good solid neighborhoods with good people as neighbors, and you’re going to be able to get good tenants to do it and find a property manager to manage it for you.
 
Joe: So with that kind of return, you’re looking at between 15% and 30% return on your money if you buy these cheaper properties. If I bought a $300,000 property and only got $2,000 a month income, the return on the investment is going to be in the single digit percentage returns – it’s not going to be worth it and in some cases it may not even cover the taxes, so when you buy cheaper properties for the long term, a lot of times those make the most sense.
 
Joe: Or, if you buy notes that have a high return on those notes – I have notes that I sell where you can get 15% to 18% returns. I have properties you can buy that make 12% to 18% return as well. So if you’re interested in buying these types of properties, or if you have cash and you want to do short term, you can buy them from me, or, if you’re interested in selling these to other investors, you can build an investor list using the marketing techniques that I teach in the “Push Button Method” (which you can learn at PushButtonMethod.com) or you can get into my mentor program (which is at ZeroDownInvesting.com) and learn those techniques there.
 
Joe: Make sure you understand how you’re going to get rid of that property when you analyze the deal, before you buy it and before you get it under contract. I hope that helps.

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2 Comments

  1. October 3, 2010 at 9:03 pm · Reply

    Diversifying investment strategies is the way to go, specially for long-term (i.e. retirement) goals. I’m a firm believer in buy-and-hold as a way to grow wealth, but short-term can have greater ROI’s if done properly.

  2. September 29, 2010 at 1:31 pm · Reply

    Joe,

    Everything I listen to helps me grow deeper in understanding. I can see your genuine love of teaching what you’ve learned along the way.

    All of these blog videos as well as the others I have listened to continue to get me closer my goals.

    Thank you

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