One of the biggest mistakes that investors and business owners make is not creating the contingency plans needed to make money no matter what happens in a deal.
We spent many hours in Maui carefully charting through dozens of twists and permutations that an investor/business owner can use to profitably exit and move on to the next phase of their lives.
Understand this: the single most important way you can control risk in a deal is to have carefully planned out MULTIPLE exits strategies so that in any eventuality you make money.
For example, imagine you are buying a 156-unit apartment building on the edge of a reviving downtown. You are buying the property with the intention of turning the property into a rental property. But what happens if you find the property is a rough one to keep as rental property? What are your contingency plans?
You could convert the units into condos and reap a huge premium over the next 12 to 24 months as you sold off the individual units to conventional cash buyers. This would provide the maximum cash to you in a short period of time.
Or if you had trouble selling enough of the units with conventional financing you could offer 30% of the condos with seller financing in the form of a large seller second mortgage. You help these buyers get a new loan for 75-90% of the purchase price (which since they are owner occupied loans and in a lower price range of property should be able to be arranged fairly easily.) You carry back the balance as a 12.9% second mortgage with interest only payments due monthly. Or you could let the interest accrue and compound. I think you get the idea here.
(A small hint here: one of the biggest money-makers if you decide to do a project where you owner finance a large number of properties or units is in the “points” you can charge your buyers. One example we went through in Maui about buying a package of 200 “REO” properties from a lender showed how over $1 million of net profit was created by structuring the financing the right way! You’d be surprised how many investors miss this easy profit center…)
If you currently have a business, have you thought about how you would exit it? Maybe you’re like many of other Maui attendees, it’s not so much about exiting the business, as changing the way you work in the business. In fact, how would you like to discover strategies you can use right now to turn your current business into a complete Level 3 business, taking 10 hours or less of your time per month? Now imagine doing that in less than 36 months! How valuable would that be?