An exit strategy is the planned method by which an investor gets out of a deal and converts it back into money: assign the contract, flip after renovation, hold as a rental, refinance and hold, or sell to another investor. Serious investors name a primary exit and a fallback before purchase, because each exit demands different numbers — a property bought at a flip's price may not cash flow as a rental, and a rental bought at retail has no flip margin. The exit is not chosen at the end of the deal; the deal is chosen to fit the exit.
The formula / structureNo formula — the discipline is underwriting the same property separately for each candidate exit and buying only if the primary exit clears its numbers.
Exit Strategy: a worked example
Worked example. A house offered at $120,000: as a flip (ARV $205,000, rehab $55,000) MAO is $88,500 — no. As a rental at $120,000 with rent of $1,450, it passes the 1% screen but cash flow after full expenses is thin. As a wholesale, no spread exists at $120,000. Three exits, three no's — the correct outcome, reached on paper in twenty minutes.
What affects Exit Strategy
- Purchase price relative to each exit's math
- Market depth for each exit (buyer pool, renter pool)
- Financing available for each path
- Investor's own skills and capital for each path
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