What Is An Effective Exit Strategy For Real Estate Investors

Written by: Adiel Gorel
This Is Your Chance At Real Wealth Building An exit strategy for real estate investments is tricky, and it is mostly true that a home is the most expensive thing that most people buy in their lifetime. There is, therefore, an understandable level of nervousness surrounding real estate investments. I get it; this is a […]
Published on September 12, 2023
Last update: ago
Est. Reading: 3 minutes

This Is Your Chance At Real Wealth Building

An exit strategy for real estate investments is tricky, and it is mostly true that a home is the most expensive thing that most people buy in their lifetime. There is, therefore, an understandable level of nervousness surrounding real estate investments. I get it; this is a big outlay. Many investors also need an effective real estate exit strategy to avoid their money being tied up in real estate.
Fearing having your money tied up in real estate need not be the case. At ICG Real Estate, we have devised a safe and effective investment plan that requires little oversight of the investor and very little of their time and effort. We can also discuss some simple and effective real estate exit strategies should an investor decide to go that way.

Hold, hold, hold.

exit strategy for real estate

A common real estate strategy is to hold your investment until the loan goes down to zero and inflation keeps raising rents. – Adiel Gorel

I always say the toughest thing to do is – nothing! Once you've bought your rental home and put a property manager in charge, there is really nothing for you to do. You sit back and let your investment work for you: Your rental income helps repay your loan, and inflation helps make that loan smaller and smaller. So all you have to do is continue to hold on to your immovable asset until you've repaid your loan in full.

As time goes by, the value of that home increases or, at the very least, keeps up with inflation. So, at the same time, it increases your net worth and keeps giving you a substantial rental income. You can simply hold on and choose to do nothing. This is one exit strategy for real estate (well, not precisely an exit, though).

Sell and take advantage of the tax-deferred 1031 exchange.

Another exit strategy for real estate that investors can use is to wait until the home's value has increased and the loan's value has decreased to a fraction of the home's value. Inflation will ensure that your loan now appears tiny.
So at this point, you can sell the property. There is a solution if you want to avoid the capital gains tax that such a sale would attract. You can use the Tax Deferred 1031 Exchange to buy more homes with the money from the sale. While this doesn't extinguish your tax liability, it defers or postpones it.

Take advantage of Step Up Basis as a real estate exit strategy.

You can repeat these steps again to create an impressive real estate investment portfolio and further enhance your net worth. You can exit at any time, but this would attract taxes. The smarter thing to do would be to continue to grow your fortune and earn a steady passive income for the duration of your lifetime.
Then, when you pass on (as we all must at some point), those deferred tax liabilities cease along with you. Because of the provisions of what is known as the Step Up Basis, your heirs inherit your assets minus this tax liability.

Sell some and pay off the remaining loan balances. 

So here is a story of a typical investor of ours: a guy starts to invest in his 40s. He buys a home, puts a property manager in charge, and starts earning a rental income. When he sees how streamlined the process is; how little time and effort it takes, he decides to buy more and more homes. At some point, he has 19 homes, and he sells four of those homes. He pays his taxes and repays his loans, and there he has 15 free and clear homes and a long, prosperous retired life before him! This is an exit strategy for real estate that I mostly recommend.
This can happen for you, too – check out my podcast for more real estate investing tips. You can also email us at info@icgre.com.
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