Imagine with me.
You’ve just purchased your first investment property. You ran the numbers until you could no longer feel anything from the finger you were using to push the keys on the calculator. It felt monotonous, but you felt good that you had done your homework.
You finished the rehab and the place looked great. Excitedly, you put the sign in the front yard and began marketing it. It was exciting and everything you had hoped it would be, up until 8 months later when you had dropped the price twice. No one has called for weeks and other than the “We Buy Houses” guys and their pitiful offers, which are looking better and better every day, you’ve got nothing. You had only budgeted for 9 months and you’re down to the end of reserves.
I know the thought of this sucks, but welcome to Casey Serin’s world. If you haven’t heard about this guy, stay away from his blog. It’s addicting to go over there and read how bad of a situation that guy’s gotten himself into at the ripe ole’ age of 24. He’s in this very position mentioned above, but worse. He’s got 5 over-leveraged properties going into foreclosure with no money and no time to do anything about it. The markets he’s invested in have fallen and he’s left with 5 properties and no equity (not only that, but he lied to get the loans by overstating his income and never lived in these “owner occupied” homes).
Casey is a classic example of not having exit strategies. He went in expecting to ride that train to the top and it has long since derailed.
The problem seems complex, but is really simple. Casey had one exit strategy: sell the property. But when that didn’t work, he was screwed. There was no Plan B or C. Plan A sucked and Casey was screwed.
What happens for you when Plan A falls apart? What happens when your credit is screwed and your cash is gone? Are you prepared? If not, let’s change things up a little.
I’ve created a list of questions to help you think through other options before you make your first or your next purchase. It’s not meant to be all-encompassing, but will at least help you to start thinking through the next steps you’ll take.
1. Keeping your financial reserves in mind, how fast do you need this property to sell?
2. Can you drop the price by 15-20% in case there’s an emergency without dipping into your own pocket?
3. If your time and cash were running out, could you rent this property for enough money monthly to at least break even?
4. Would it be possible to lease-to-own this property? If so, how would you market it and how much would you charge for the option fee and the rents? Do you have a lease you would like to use?
5. If there was little to no money left and renters could not be found, could you refinance this property to pull enough cash out to survive a little while longer to make this last a little longer? (I am not suggesting putting cash in your pocket for any other reason than surviving until you can make some thing happen with the deal)
There are other options available, but this will help you to start thinking through your own exit strategies. There’s no magic order. It’s simple. Think through the plan that makes the best sense for your specific property.
Tuesday’s Tip #3: Don’t be like Casey Serin. Think ahead. Casey, if you’re reading this, you may want to think through a few good prison-shower exit strategies.
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