In real estate wholesaling, the goal is simple: find distressed properties, get them under contract, and sell that contract for a profit. But while the process of finding deals is crucial, what many wholesalers overlook is the importance of having solid real estate wholesaling exit strategies.

An exit strategy is the plan you have in place to sell or transfer a property after you’ve secured it. In wholesaling, having the right exit strategy can be the difference between a successful, profitable deal and a lost opportunity. A clear and well-thought-out exit strategy ensures you’re prepared for all possible outcomes, whether the market shifts or unexpected challenges arise.

In this article, we’ll discuss the importance of real estate wholesaling exit strategies, the different types of strategies available, and how to choose the best one for your deal.

Why Real Estate Wholesaling Exit Strategies Are Crucial

Mitigating Risk

Wholesaling real estate can be profitable, but it’s not without risks. The market can fluctuate, buyers can back out, and sometimes properties don’t sell as quickly as you’d like. Without a solid exit strategy, you’re left exposed to these risks.

By having a clear exit strategy in place, you can reduce the chances of holding a property for too long or losing money due to unforeseen circumstances. Having a plan ensures that you can exit the deal in the best way possible, minimizing risk and protecting your bottom line.

For example, let’s say you sign a deal for a single-family home in a hot market, but when it comes time to sell, the market suddenly takes a downturn. Without a plan, you could lose time and money. However, with the right exit strategy, you might be able to assign the contract to a rehabber or use owner financing, turning a potentially lost deal into a profitable one.

Maximizing Profits

The right exit strategy helps you maximize your profit on each deal. You may be able to earn more by strategically choosing between different real estate wholesaling exit strategies based on the property’s condition, the buyer’s profile, and current market conditions. Without a plan, you may end up settling for less than you could have earned from the deal.

For example, assigning the contract to a cash buyer might be quicker and simpler, but double closing or offering owner financing might generate more profit in certain cases. A well-thought-out exit strategy helps you choose the most profitable route.

Here’s a case where this is true: Imagine you’re wholesaling a distressed property. If you assign the contract, you make a fixed fee, but if you double close, you may be able to make more money because you’re selling to a rehabber who sees value in the property after repairs. By understanding all your options and choosing the best one, you can secure a better deal.

Avoiding Common Pitfalls

It’s easy to get caught up in the rush of closing a deal, but without a clear exit strategy, wholesalers can fall into common traps. Without a strategy, you risk:

• Not having a buyer lined up: This can result in holding a property for too long and incurring additional costs.
• Not knowing when to pivot: If your initial strategy isn’t working, you need to know when and how to change it without losing profits.

A proper exit strategy prevents you from making hasty decisions that could negatively impact your profits.

Common Real Estate Wholesaling Exit Strategies

There are several exit strategies available in wholesaling. Let’s go over the most common ones:

Assigning Contracts to Cash Buyers

This is the most straightforward exit strategy in wholesaling. Once you’ve secured a property under contract, you find a cash buyer who’s interested in the property. You assign the contract to the buyer and pocket the assignment fee.

This strategy works well for properties that are in decent condition and when there’s a demand for the property from cash investors. It’s quick and involves minimal risk, making it the most commonly used exit strategy in wholesaling.

Double Closings

In a double closing, the wholesaler buys the property first and then immediately sells it to a third-party buyer (typically an investor) at a higher price. This strategy allows you to make a profit from the price difference without having to assign the contract.

Double closings are useful when the buyer prefers not to know the price the wholesaler paid for the property, or when the wholesaler wants to maintain control over the deal and earn a bigger profit margin. However, this strategy requires sufficient capital to close the deal, making it less accessible for new wholesalers without liquidity.

Real-World Example:

A wholesaler signs a contract for a distressed property at $100,000. They find an investor willing to pay $120,000 after repairs. In a double closing, the wholesaler first buys the property at $100,000, then immediately resells it for $120,000, earning a $20,000 profit.

Wholesale to Rehabbers

Rehabbers, or fix-and-flip investors, are often willing to pay more for properties in need of repairs because they can renovate them and sell for a profit. If you come across a distressed property that doesn’t fit the typical criteria for a cash buyer, consider wholesaling to a rehabber.

Rehabbers are often willing to pay more because they see the potential in turning the property around. If you know how to find rehabbers in your market, this can be a very profitable exit strategy.

Owner Financing

In some cases, wholesaling properties to buyers who are willing to pay for them using owner financing can be an effective exit strategy. In this arrangement, the buyer agrees to make payments directly to the wholesaler instead of getting a traditional mortgage.

Owner financing can be a great option for buyers who can’t qualify for traditional financing, and it provides the wholesaler with a steady cash flow. However, this strategy comes with risks such as the possibility of the buyer defaulting, so it’s important to carefully assess each situation.

Real-World Example:

A wholesaler sells a property for $75,000 to a buyer using owner financing. The buyer makes a down payment and agrees to monthly installments, with the wholesaler receiving regular payments over time instead of a lump sum.

Lease Option

A lease option allows the buyer to lease the property with the option to buy at a later date. This strategy works well for properties that may need some time to appreciate or for buyers who need time to save for a down payment or improve their credit score.

Wholesalers can use lease options to generate income while maintaining flexibility in case the buyer doesn’t ultimately purchase the property. It’s a good way to generate cash flow while still keeping the door open for future sale.

How to Choose the Right Exit Strategy for Your Deal

When determining which exit strategy to use, it’s important to assess the deal and the market conditions. Here are some key factors to consider:

Market Analysis

Different exit strategies work better in different market conditions. If you’re in a hot market with lots of cash buyers, assigning contracts might be the quickest and most profitable route. But if you’re in a slower market, strategies like double closing or owner financing may help you maximize returns.

Deal Type

Consider the condition of the property. If it’s in excellent condition, a cash buyer may be your best option. If the property needs work, a rehabber or a lease option could be a better fit. The more distressed the property, the more likely you’ll want to wholesale it to someone who can make repairs.

Speed vs. Profit

Sometimes you need to close a deal quickly, and assigning a contract might be your best option. However, if you’re willing to wait a little longer for higher profits, consider strategies like owner financing or double closing, which take more time but can result in larger profits.

Buyer Type

Your exit strategy may depend on the buyer. If you have an investor interested in flipping a property, wholesaling to rehabbers might be the best route. If the buyer is looking for a property to live in, lease options or owner financing might be a better option for them and you.

The Risks of Not Having an Exit Strategy

Having no exit strategy puts you at risk of making reactive decisions that could cost you. Some of the common risks include:

Increased Costs

Without an exit strategy, you might end up holding the property longer than expected. That means ongoing carrying costs like taxes, utilities, and maintenance, eating into your profits.

Loss of Control

If you don’t have an exit plan, you’re essentially in the dark. Not knowing how you’re going to exit the deal can make it difficult to move forward and may lead to mistakes or missed opportunities.

Missed Opportunities

Without a strategy, you may be too focused on the current deal, missing out on more profitable ones that are better suited to your current situation. Not having a plan can cause you to settle for less or pass up a better deal.

Developing a Flexible Exit Strategy Plan

It’s important to have more than one exit strategy in place. Flexibility is key in the unpredictable world of wholesaling, and you want to be prepared for changes in the market or the deal. If your original strategy doesn’t work, knowing how to pivot to another strategy will allow you to move forward without losing money.

Conclusion

Having a solid real estate wholesaling exit strategy is crucial for success in this business. Whether you’re assigning contracts, closing double deals, or offering owner financing, knowing how to exit a deal profitably allows you to reduce risk, maximize returns, and avoid common pitfalls. Make sure to plan your exit strategy in advance, adjust it as needed based on market conditions, and be prepared to pivot when necessary.

By choosing the right exit strategy for each deal, you’ll be better positioned to build a profitable wholesaling business with fewer surprises along the way.

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