Every good plan has an exit strategy. One of the first questions to ask your clients when talking about strategically building an investment portfolio is… why?

“Why do you want to and what do you hope to get out of it?”

The answer to these questions will curb how you advise them moving forward.

For instance, let’s say they say “I want to build a legacy for my kids.” Well, then you know you’re in the long game. If the market and margins are currently tight, in this scenario it may not be as important if the property currently cashflows. (Please read the previous post on calculating cash flow if you haven’t already).

They might treat the properties they purchase like they would a 401k and be fine throwing in a few bucks monthly toward the investment as they (and the renters) slowly pay down the loan.

If their answer is “I want passive income for retirement,” then you know you need to cashflow to pay the mortgage down based on the amount years left until they retire. Should you be educating them on a 1031 Exchange?

If their answer is “I want to flip properties to build capital,” then you know you have to time the market to get the property at a price that is below fair market value.

If their answer is “I need a write-off for my taxes,” talk to their CPA and devise a 10-year plan. 

If their answer is “I don’t know,” then you must help them uncover their exit strategy. One of the biggest mistakes an investor can make is not preparing with a plan of how to get in, but also how to get out.  

By walking them through this question, you will show that you are a pro, whether you’re referring the legacy folks to someone who can build them a family trust, or showing the newbie flipper the amount of risk they are absorbing with the current market margins (and that HGTV isn’t exactly accurate). Or, educating literally everyone who will listen on the power of using the 1031 Exchange program to grow your assets.

If you don’t know what some of those things are, it’s time to hit the books. You are a realtor. Unfortunately, that means you need to know a little bit about a lot of things as well as who to refer to for the real details. The most important thing to take into account is that there isn’t a one-size-fits-all strategy.

Leave a comment below on what types of exit strategies you’ve helped clients with and your top advice for your clients looking to be first-time investors.

Until then, chin up, keep your feet moving… and burn the white flag.

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Copyright 2019 - Shelley Zavitz Realty