Should I have an Investment Exit Strategy?


When approaching property investment, it is very important to ensure that you start with the end in mind. Setting your goals and identifying your reasons for investing in property is crucial when creating your investment exit strategy and helps you get the most out of your investment.

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Please see below the full transcript of the video:

Hi and welcome to the latest Ask Johnsy. Here we’re going to address a question from Khalid in Lahore who has asked about exit strategy, exactly what is it, what do I need to be asking myself? Well, exit strategy is one of the five essential elements of property investment. The first one being not buying on discount alone, very important, understanding your rental value, understanding your tenant profile, using leverage, and finally, your exit strategy.

Exit strategy, start with the end in mind. That’s the easiest way of describing it. So, where do you want to get to? What is your goal? What do you want to achieve from this investment, and understanding that? You’re not just buying a property because somebody in the pub’s bought a property that you know, you know, you’ve got to have a reason for buying it otherwise you’re never going to know when you actually achieve it and when you achieve something, that’s the time to exit, that’s the time to take your money out.

Property has two ways of getting money. One is your rental yield, the other one is the capital appreciation. Now, you only get capital appreciation, you only realise it when you either refinance or sell and selling obviously is your exit. Also, when you are going to sell the property, how are you going to sell it? Who’s your audience? You know, is there anything that you need to do to that property in order to sell it and how long are you wanting to invest for? Some other considerations that you need to take are, these are often forgotten in reports that I’ve seen on exit strategy, but how likely is your situation to change? If your situation is quite stable, you’re in a stable environment, then you can really rely on these predictions, forecasts on your exit strategy and also what is the local area likely to do? Is it a stable area, you know, has it got stable demographics? If it’s a volatile area, there’s a chance that your exit strategy might not work or might be irrelevant. You can rely on your exit strategy more if you’ve got a stable personal life and your investing in a stable area.

Generally speaking, there’s four types of exit strategy. Your first one which is the most popular one is a time-based exit strategy where you may say ‘well, I want to invest until I retire, I want to pull the money out at that point. I might want to invest until I put the kids through university’, that’s another time-based strategy. That’s the most popular one but bear in mind these can be combined as well, or you might leave it open, you might have two in mind.

The second one is capital-based. Capital-based strategy wants, and this can be either way so you might buy the property for £150k, you might say well if it falls below £100k in value, then I want to pull my money out and put it into something else because it’s a waste of time. That’s less likely to happen but what’s more likely to happen is you’ll say ‘once it reaches £250k, I want to sell at that point because I can use that £250k and split it into two properties’ and you might have your next follow-on investments in mind, so always looking at the market and keeping in touch with what’s happening in the property market.

The third one is a rental yield based strategy and this only works one way really and that is, you might say ‘well I’ve got a 6% yield at the moment, 6% NET yield, once my yield falls below 4.5%, I’m going to pull out because therefore I can make more money in other types of investment if it reaches that kind of level’.

The fourth strategy, and it’s not really a strategy but it’s something you need to consider, and that’s an emergency exit. This might be in case you need the money and now this is more for people with more to pull properties in their portfolio. You need to bear in mind which property you’re going to turn to in case you need the cash and how quickly you can pull that money out in case you need it and having that property, or the strategy at least ready and in mind so that if you need to pull the money out to use for something in an emergency, then you can do that.

So, that’s all about exit strategy. Thank you.

Thank you for watching Ask Johnsy. Feel free to ask any questions in the comments box below, or email us at askjohnsy@residential-estates.co.uk. If you find this video useful, click on the like and subscribe buttons below. You will also find our contact details below. See you on the next Ask Johnsy.

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