Thinking ahead of your commercial real estate exit strategies even before you start investing is essential. Proper planning helps you pivot your way out if you want to profit from your CRE investments and prevent losses as much as possible. With all the benefits of CRE investing, deciding when to exit should be part of an investor’s real estate journey.
Whether you are an active or a passive investor, here is a list of CRE exit strategies to consider once you start to build your portfolio through investing in commercial real assets.
One common commercial real estate exit strategy is identifying your buyer persona before considering buying an asset. An exit strategy could help you find properties that you can upgrade to meet the persona’s needs. Your goal is to find properties that attract your chosen persona and get the highest net operating income possible.
Investors who follow this real estate exit strategy look for commercial properties that are poorly maintained and undermanaged but situated in good locations. The strategy is to increase the value of the property, increase tenant occupancy to meet the criteria of your persona, then sell the property for a lower cap rate and profit.
This strategy is for commercial real estate investors who want a higher profit margin but with few challenges. Fixing and flipping involve finding a run-down commercial property and maximizing its value through repairs and maintenance before selling it higher than the investment costs.
To work perfectly, you need to find a competent real estate agent and a highly skilled contractor to help you with this strategy. If you’re confident in the property you have your eyes on, this exit strategy could be the most lucrative for you.
With all the potential profit of your CRE investments, one of its disadvantages comes is paying capital gains taxes once you sell your commercial property. One strategy that investors use is to enter into a 1031 exchange. This exchange allows investors to sell their existing property and defer taxes by acquiring a property/ies with a higher or same valuation.
1031 tax-deferred exchange helps you move your capital gains taxes and provide you with more liquid cash for your next commercial investment. This strategy allows you to build your investment portfolio to target larger commercial properties in the future.
Formulating the right exit strategy for your CRE property might be a daunting task but it will truly benefit you in the long run. Planning for it requires thorough research and planning for it to be successful.
Contact a trusted partner to help you formulate the right CRE exit strategy so you can enjoy the benefit from your investments, increase your bottom line, and build wealth over time.