This is the final part of a 4 part series.
Exit Strategy
It’s hard to envision exiting the property when you haven’t even bought it yet. But the best multifamily investors do just this. Take the time to consider how you will exit. You should have already started thinking about this last time in the asset management post.
If you intend to keep it forever and give it to your kids, you still need a strategy. It will be a tax strategy and you will need to speak with your accountant years in advance. Usually this is the most beneficial for a 1031 exchange (which, in this case, will be done when purchasing the property). Follow the link for more information on that.
If you aren’t passing it down to someone, then you will be selling. For that, you need to decide when. Is it in 5 years, 10 years or upon retirement? That should have already been decided in the asset management phase. So, here we are now, ready to sell.
One year before selling, you need to do an inventory of all the repairs that need to be made. Many of these will be curb appeal things, like painting the parking lines or repairing the siding. Painting is a relatively low-cost way to spruce up the place. Landscaping is more expensive but can really add some pop to the sale.
You’ll need to decide if you want to get every dollar out by raising the rents or if you want to maximize occupancy so the new seller can easily get a loan. You’ll want to keep at least 90% occupancy for the full year, either way. Generally, the year prior to the last year is a good time to be aggressive on rent increases while monitoring for vacancy, which will go up. Keep these two things in mind and check them frequently leading up to the sale.
Make sure you don’t have any liens on the property. Check this with the municipality. You do not want to run into anything that will hold up the sale. Some people ask about pre-inspections. I don’t do them. Let the seller get in and do their own, they will want to anyway. A pre-inspection on multifamily will be a huge expense and not really help you.
Get all your diligence documents ready. You don’t want to hold up the sale because you didn’t have a rent roll or utility bill prepared. Have it all in a dossier to give the seller upon request. Only give them the requested documents. You don’t want to overwhelm them with paper to sift through. Keep in contact with the buyer or buyer’s agent throughout their diligence.
Finally, close on the property and reap the benefits of the huge return on a deal well-run!
