Exit Strategy

How the syndication plans to cash investors out of their stake in the future. This may be through selling the property, purchasing their shares, or refinancing them out.

‍What Is the Meaning of Exit Strategy?

An exit strategy means a plan that an investor or business will execute to liquidate or get out of a deal that is no longer profitable or desirable. In real estate, an exit strategy is generally used when there is a non-performing asset. In business, an exit strategy usually means that the business is no longer profitable. 

However, an exit strategy is also used when the investment plan or business plan has achieved its profit limit. For example, if an investor decides to retire and no longer wishes to manage the property he has invested in, he can execute his exit strategy to sell off the property for maximum profit. Similarly, if a business partner or an angel investor believes that the company is at its highest position, he can use an IPO as an exit plan.

Hence, executing an exit strategy by an investor or business does not always mean that the deal was a loss. It can be done for purposes other than bankruptcy or land devaluation. 

Why Is Exit Strategy Important?

It is important for investors and businesses to have a contingency plan which they can execute to dispose of an investment in a business deal or asset investment. It helps to maximize the profits and minimize the loss as the investor will already know when to do away with the investment. 

When a business or investor has a plan for when things will go downhill, it helps them to make decisions calmly and without indulging in panic-selling. Additionally, for businesses it helps to pass on the torch in case of unforeseen events such as death of a key personnel. 

The bottomline is that an exit plan helps people to have a backup plan if and when they feel the need to withdraw.

What Is an Exit Strategy for Investors?

For each investor, an exit strategy will have a different outcome. This is based on the individual's needs and available resources. However, investors can weigh options that will guarantee maximum profit for them in the future. Here are a few exit strategies for investors:‍

1. Traditional selling: When an investor sells his property to another buyer through a broker or real estate agent with a higher price value. 
2. Wholesale: When an investor acts as a middleman for a seller and a buyer. In this situation, he usually sells a property that the seller is eager to let go even if it is at a lower price. Then, the investor looks for a buyer who is ready to pay the price the investor sets. This is the profit the investor makes. 
3. Flipping: In this, the investor purchases a property that is undervalued, renovates it and sells it at a higher price. This way he recovers his expenses and makes profit. 
4. Pass on to a family member: An investor can choose to create a will where they will pass the property to a family member and when the time comes, the property value is adjusted to fit the current market price. 

‍What Is a Good Exit Strategy for a Business?

Every business owner must have an exit strategy in place before they launch their business. This will help them execute the strategy to ensure maximum profits in case of expected shortcomings. Just like real estate investors, a good exit strategy will depend on the goals and expectations of each individual owner. Here are some of the most popular exit strategies for businesses:

1. Merger or Acquisition: Large businesses will often merge with another company for a profitable amount to ensure their investors and stakeholders are paid in full.
2. Liquidation: In this, businesses who are suffering losses or are going to crash, close their business and sell off their assets to pay back debts and shareholders. 
3. Bankruptcy: This is often the last option for failing businesses. When a business declares bankruptcy, a court order is passed relieving them of their obligations to pay back debts. Here, the federal court seizes all the assets and the owner has no say or stake on them anymore. 

‍Conclusion

Whether it is a business owner, entrepreneur or real estate investor, it is extremely important to have an exit strategy before going ahead with their business or investment. It will provide an exit pathway in case of events beyond their control. It will also ensure that they get the maximum benefit and minimize the losses.