Various Types Of Private Equity Exit Strategies
Have you thought about investing in the real estate sector? There are different types of properties you can invest in. But Class B and C multi-family properties through real estate syndication in partnership with private equity firms are the best options.
Several investment strategies associated with multi-family apartments help private investors determine their risk and returns potential, like core, core-plus, value-added, and opportunistic. You should know these before investing.
Knowing about the various private equity exit strategies that help you exit a deal or sell your part of the property while reducing the risks involved, enjoying high returns, and minimizing the chances of failure is essential. You should choose a strategy that helps you get the most out of your equity.
One of the main reasons behind an exit plan is that large investors hold properties between five to seven years, sometimes exceeding ten years. You might not probably hold on to a property for that long, as four to five years is sufficient to understand its growth value and ensure healthy appreciation.
Continue reading to find more helpful details about this topic.
Various Types Of Strategies
Unlike what some investors think, an exit does not necessarily require hard selling (involving quick and direct methods to persuade buyers).
Refinance, sales, new capital partner, and seller refinancing are options that enable you to receive a total or partial share of initial capital contribution (primarily applicable to limited liability companies (LLCs) by pulling equity. Here’s a look at each of them.
Refinance
Refinancing in the real estate industry refers to using borrowed capital like a mortgage or debt to acquire a new property. Investors usually do this when the profits on the invested property exceed the interests on the mortgage.
You should consider this option after 18 to 36 months after carrying out renovations, increasing rents, and reducing expenses. In other words, you should wait till the property’s price has increased significantly.
Since your cash flow would be at an all-time high, you would find it easy to repay the existing debt or mortgage. However, before considering this option, you should ensure your property meets the debt service coverage ratio (operating income ratio to monthly debt service).
Sales
Many investors prefer this exit option as it enables them to regain 100% of their equity. The other reason is that multifamily properties are pretty liquid (they sell quickly and close to or exactly their market value).
The high liquidity enables you to exit at a higher price. Usually, multifamily apartments with a high unit count are attractive to big-scale investors like family offices, institutions, and large private equity firms.
Although investors hold properties for five to seven years, the sale depends on various factors, including the real estate cycle with its four stages: recovery, expansion, hyper-supply, and recession.
New Capital Partner
It refers to a capital partner who buys some shares or ownership of your property. You can do this by merging with a large company, selling your share, or taking up a position within that company.
A partnership in which another investor is willing to buy shares reduces the investment risk by sharing profits and enhances your asset’s value. However, you might have to sacrifice a significant portion of your own under this strategy. It is also crucial to find an experienced associate familiar with such techniques.
You might consider these private equity exit strategies as an investor. You should choose one with the lowest risk and potential for the highest returns. Knowing everything before buying a multifamily property is advisable, as it helps you select an appropriate way of excusing yourself from a deal.
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