Quite a lot of people have invested their money in real estate assets mostly for the purpose of getting financial benefits in form of what is popularly known as return on investment. For such people, the whole point of purchasing investment properties is to make money through appreciation or rent in the years to come.
But real estate investment experts say investors should look beyond return on investment because, according to them, no successful real estate investor enters the market without establishing an efficient investment plan which includes having an exit strategy even before purchasing the investment property.
“An investor will most likely choose to let go of one or more of properties for various reasons. For this reason, choosing the best strategy for exiting a real estate investment is just as important as deciding which one to buy”, says Udo Okonjo, CEO, Fine and Country West Africa, a real estate marketing firm.
Okonjo explained to BusinessDay recently that a real estate exit strategy was a plan in which the real estate investor intends to remove him/herself from a real estate investing deal, stressing, “it is a consideration as to what the real estate investor will do with the investment property”.
Investors like Actis and African Capital Alliance which are private equity firms with special focus on emerging markets are specialists in investment exit strategy and, usually, have their reasons for have such exit strategies.
Generally, an investor has exit strategy on his/its investment because it helps to keep his end date of a financial goal in sight. It’s never wise for an investor to enter a real estate investing deal without having a clear understanding of how he will profit or for how long he wishes to profit before moving on from the real estate property.
An exit strategy also gives an investor the freedom to reinvest in more real estate. This is because an investor that has successfully exited a real estate investment has the liquidity to re-invest in other real estate properties and expand wealth.
Overall, there are two types of exit strategies that have proven to work, especially in the high end luxury markets like the Ikoyi, Victoria Island in Lagos and Maitama and Garki in Abuja are the ‘lease option’ or ‘lease purchase’.
The Fine and Country boss explained further that the lease is just like any other rental lease, where the tenant moves into the home and makes monthly rent payments. “This strategy has proven to be a great short-term exit strategy for a slow market as it can provide positive cash flow while giving the owner the opportunity to wait for the market to improve and lock in a possible buyer”, she said.
For a lease purchase option also known as Rent-to-Own, a legal agreement is brokered that gives the tenant the legal right to buy the home at a pre-determined price in a pre-determined length of time. In exchange for the tenant’s sole ‘option’ to buy the property, the tenant will pay an upfront non-refundable ‘option fee’ that will typically be later applied toward the purchase.
Whatever strategies are adopted, an exit strategy should always allow the real estate investor to cash out of the investment property with minimum difficulty.
CHUKA UROKO
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