Now that investing in buy to let property needs to be a more considered decision than in recent times (putting it mildly eh?) it is particularly important to consider your buy to let exit strategy – and have an exit strategy before you invest in property in the first place.
Investing in property without having an exit strategy can be a very risky business indeed – it poses the risk of investing your money and getting no return, or even getting less back than your original investment.
Here are some types of exit strategy you might like to consider:
Time based exit strategy. With this type of exit strategy you sell your property after a given number of years. This type of strategy is ideal if you are buying property as a pension. In this case, you might deploy your exit strategy either when you retire, or at a pre-determined period after retirement. If you have several properties you might decide to sell one or more at different intervals.
Another issue when using this type of exit strategy is to consider your capital gains tax and other tax allowances and liabilities and aim to make tax efficient disposals – take advice from experts on this well in advance.
Bear in mind that property is best regarded as a long term investment – typically for ten years minimum. So, if you want to invest for less than this it might not be the right kind of exit strategy for you.
Capital value based exit strategy. With this type of strategy you move on your investment once it has achieved a particular capital value. (Or even once it has dropped below a stop-loss.) For example, once your property is worth £150,000, £250,000, £500,000 – or whatever level is appropriate to you. (And of course relevant to your original investment.)
Some investors use this kind of exit strategy in order to exit one property investment and re-enter the market with another. For example, selling a £500,000 investment to re-invest in two or more others in a cheaper area.
With this strategy you don’t have to be so concerned with time. Instead you need to become pre-occupied with price rises (and falls) and monitor expert forecasts regularly to try and judge when your an appropriate time to exit the market might be.
Yield based exit strategy. With this exit strategy you decide the minimum level of yield you’re happy with. You sell if and when your yield falls below this level (in other words, also a kind of stop loss.)
This kind of approach involves no time-based element. The time frame you’re working in could be 20 years …. or it could be two years. To use this technique effectively it’s important to monitor your yield performance regularly.
Bear in mind that, right now – even given recent tax changes – it’s still pretty much a given that property will produce a better yield than any kind of savings account. However this won’t necessarily always be the case …. historically it hasn’t always been either.
At the end of the day there’s nothing to say you have to use these exit strategies. If you prefer, create one of your own. But whatever you do you must have a well-thought-through exit strategy whenever you invest in buy to let property.