In property investing, as in life, you should try to enter situations with a clear plan in mind for getting out of them. Although there is a good chance you’ll never need to act on these plans, it is important to have the option in place. With this in mind, here is a quick guide to developing an effective property exit strategy:
Work out Which Factors Will Force You to Sell
Decide in advance what justifies keeping your property portfolio as it currently stands. Then decide what justifies selling all or part of it. Do this when you are feeling calm. Make the time to assess the issue with the consideration it deserves.
Continue to monitor your portfolio and, if necessary, the wider situation. As soon as you identify a “sales trigger”, act on it. Forget about trying to second-guess yourself or letting emotion take over. Act on the decisions you have already taken in a calm and rational state.
Define SMART Targets for Your Property Portfolio
As you probably know, SMART stands for:
The term “SMART target” has become one of the biggest cliches in business, but it’s true. You need to define the terms of success for your overall portfolio and its individual components. Those terms of success need to be specific, measurable and realistic in order to be valid.
This is the only way to know whether or not your portfolio is delivering an acceptable level of performance as compared to the alternatives.
Set Any “Must-Sell” Flags
Take a lesson from the stock market and decide if there are any situations in which you will sell no matter what. Then monitor the news carefully for any signs of that situation arising. Be prepared to keep assessing and reassessing those “must-sell” flags in the light of political developments.
Be careful about selling purely on media speculation or reports of what a politician has said. Politicians, even senior ones, may put out ideas just to see what sort of reaction they get. Even if an idea goes to the consultation stage, it is not a guarantee that it will be adopted. It is, however, a sign that it is a serious proposal.
Remember Local Media Sources
As a side note, remember that the property market is governed by both national and local rules. In fact, outside of England, there may be rules set by local parliaments as well as the national government and local authorities. This means that you should remember to keep an eye on local news sources as well as national/trade ones.
Decide How You Will Go About Selling Your Property Portfolio
The good news is that there are really only two questions you have to answer.
- How much of your portfolio will you sell?
- Who is your target buyer?
These questions do bring on further questions. Some of these can be assessed in advance, at least to a certain extent. For others, you may have to wait for more complete data.
How Much of Your Portfolio Will You Sell?
The answer to this will probably depend on why you are selling. If you are selling because you wish to exit a highly-regulated market, you will likely wish to sell your whole portfolio. If, however, you want to exit a particular sector of the market (e.g. residential buy-to-let or short-term lettings), then you will presumably only want to sell part of it.
If you are selling because part of your portfolio is underperforming, then you might consider exclusively selling the underperforming properties. If you are selling for financial reasons, you might similarly vet your portfolio.
Who Is Your Target Buyer?
This is an important decision because it will largely determine how you approach the sale. Your options are:
- selling to a limited company you own
- selling to another investor
- selling to a residential buyer
Selling to a Limited Company You Own
The mainstream media sometimes describes this as the “landlord loophole” due to its tax benefits. This description is misleading. While this process can certainly have tax benefits, if you take action purely for its tax advantages, you may find yourself running into trouble with HMRC down the line.
Selling into a limited company may, however, be a good option if you want a more flexible ownership structure for your business. For example, you might want to involve other people and give them shares in your company to reflect the work they are doing for you. Alternatively, you may want to maximize your options for estate planning.
Selling to Another Investor
Selling to another investor can be a good choice if your priorities are speed and convenience. It can be particularly helpful if you have tenants in place. They can keep their home and your buyer will have the assurance of income. It can also be a good option if you know that it would be difficult for a residential buyer to get a mortgage on your property, e.g. it has a short lease.
Be aware, however, that successful investors are people who do their sums carefully. They will not fall in love with a property the way a residential buyer might. Instead, they will agree to pay the right price or they will walk away.
Selling to a Residential Buyer
Selling to a residential buyer will open up a broader market for you. This could generate more competition, which could lead to you getting a better price.
On the other hand, selling to residential buyers could be more complicated than selling to investors, particularly if your property is still tenanted. You will have to depend on your tenants’ goodwill to keep the property in buyer-friendly condition.
Even if your property is empty, marketing it to residential buyers can require a lot more effort than marketing it to investors. A good estate agent can make a huge difference here, so do your homework and be prepared to spend money on a firm which can deliver results.
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