A lot of material is on the Web, in books, and taught in seminars and courses about how to value and purchase apartment & multifamily properties. And, it’s important to get that valuation and purchase strategy right.

Few investments can be called successful if they start out with an overpriced purchase. Buying right on the front end is quite important. But, the disposition, the exit strategy, is just as important. Unless the plan is to leave a property to heirs, at some point it will be time to sell.

Exit Strategy Begins at Purchase

An apartment & multifamily investor should be planning an exit strategy as part of the purchase. It’s not too early, as some deals can be negotiated differently on the buy-side due to the plan for the disposition.

An example might be a long term approach to the purchase of an apartment foreclosure property that needs a lot of rehab work. But, the value of the property will be enhanced greatly if this work is done, and far above the costs of the work.

The investor may factor this into the offer, even though cash flow is the primary criteria. The capital gains strategy, or a plan for a 1031 exchange on the exit strategy factors into the purchase.

But, beyond that, if there’s no attention early on to the exit strategy, there could be negative consequences on the other end of the deal. A projection of the local economy, real estate trends, and growth should be done for cash flow reasons, but carried out to the expected disposition as well.

Predicting the future isn’t possible or required, but a reasonable belief that the local conditions will yield a reasonable resale when the time comes is important.

Planning for Advantageous Early Disposition of Apartment & Multifamily Projects

A plan is just that, a plan. It doesn’t have to be set in stone, and variables can be considered a part of the plan. Early in the ownership period, a plan variation could be the early exit strategy if the market so dictates.

In good times, appreciation in facility and land value might make a sale appealing. If a new major employer moves in and rental demand shoots up, rents will as well. The cash flow and resulting cap rate may make a sale the perfect strategy. A 1031 exchange at that point might roll the owner into another larger property with great potential.

I’ll share more with you soon…

Warm Regards,

Karen Hanover, CCIM Candidate
Apartment Education Institute, President

Tagged with: 1031 exchange , apartment & multifamily , cash flow , exit strategies , exit strategy , Karen Hanover , planning , purchase , sale