Real estate investing, like any other form of investing, can be risky. But not all risk is created equally. Some risks can be managed. Fortunately, for real estate investing, much of the greatest risks are mitigated with sound investment practices. These certainly include conservative underwriting, but also achieving flexibility from having multiple options.
Multiple Exit Strategies
From an investment perspective, the more options, the better. When there are multiple strategies that can be employed for the same investment, that flexibility is highly valuable and helps protect investors against downside risks. Here is a great example. When investing in a multifamily asset, it is invaluable to have multiple alternatives based on what the future may bring. If the property produces sufficient cash flow to easily cover debt service and investor distributions, it can be sold tomorrow if there is a great opportunity, refinanced and held if needed or sold at a later date when the market best supports a sell. Having these options available takes pressure off of your investment and allows you to seize any opportunity that may come your way.
I recently attended a meetup where the speaker shared his strategy for commercial retail investments. By only working with corporate tenants and receiving the corporate guarantee, the pressure is off of him for receiving payments, since the long term rental commitment is guaranteed by the corporation for 10-15 years! Be securing a high-quality tenant in a formerly vacant asset allows him to achieve instant value creation where he could sell the property immediately, sell in a few years or hold it for the long term and collect cash flow!
The more exits, the more power.
Passive Investor Takeaway
If you are seeking to invest more passively, this concept of multiple options is still highly relevant. As you review investment opportunities from operators, look for flexibility in the offering. What potential additional uses and income sources could be achieved and what additional exit strategies exist? If you are not seeing this flexibility, ask for better understanding. With whomever you seek to invest your hard-earned money, flexibility does not hurt the deal, but protects from downside risk and may even add very lucrative opportunities to the investment!
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– How To Use Your 401k To Invest In Real Estate
