As investors near the end of their investment lifecycle, the question of exit strategies becomes increasingly relevant. After years of building a portfolio and accumulating financial wealth, it’s crucial to understand how to transition from a portfolio to a lifestyle of carefree living. In this article, we will delve into the topic of exit strategies and share insights from experienced investors, including the journey of Matt Lewison (CEO OpenCorp) father, Steve, and the success story of Mark and Sue, two clients who recently achieved their retirement goals.
The Journey of Steve: A Lesson in Smart Investment Planning
Matt had the unique opportunity to witness his father’s investment journey from its inception to the eventual exit. Initially, Steve had a clear vision: he aimed to own seven properties, with one covering his expenses and the remaining six providing a source of income. However, as he delved deeper into property investment, Steve’s enthusiasm led him to acquire more properties than originally planned. When the time came for retirement, he realized the need to de-leverage more than anticipated.
This realization offered a valuable lesson: while pushing oneself to achieve more can be exciting, it’s essential to strike a balance and be methodical. Owning three to four properties for a ten-year period can yield the desired outcomes for a better lifestyle, providing investors with more freedom and flexibility at an earlier stage in life.
Mark and Sue: An Inspiring Exit Strategy Success Story
The journey of Mark and Sue, who sought a better retirement after their superannuation was impacted by the Global Financial Crisis (GFC). Recognizing the power of compound growth, they approached their investment roadmap with a clear understanding of two distinct phases: acquisition and consolidation.
Mark and Sue wisely capitalized on their strong equity position, acquiring two properties initially and mapping out a plan to add one property per year for the following three years. This strategy allowed them to build a portfolio of five investments and enjoy a favorable holding period of five to six years. This period of consolidation empowered them with choices, such as selling a property to generate profits, reduce debt, and improve cash flow. Sue was even able to retire three years ago, well ahead of their original timeline.
Read more of Mark and Sue’s journey.
The Importance of Timing and Holding Periods
Both Steve’s and Mark and Sue’s journeys highlight the significance of timing and holding periods in achieving financial goals. Understanding the concept of compound growth and the value of giving properties time to appreciate in value and rents to increase are vital for successful exit strategies. A ten-year holding period provides investors with flexibility and opens doors to various exit scenarios.
Diverse Exit Strategies
Tailoring to Your Goals It’s important to recognize that there is no one-size-fits-all exit strategy. Instead, depends on individual circumstances, financial resources, borrowing capacity, time frames, needs, and goals. Some common exit strategies include:
- Living off Rental Income: Generating positive cash flow from multiple properties to cover living expenses.
- Debt Reduction: Using positive cash flow to gradually pay down debt, improving cash flow and reducing financial burdens.
- Selling Properties: Selling properties strategically to realize profits, reduce debt, and enhance cash flow, leveraging property value appreciation.
- Unlocking Home Equity: Adding extra investments to the portfolio to completely pay off your home sooner allowing investors to access equity for lifestyle purposes.
- There’s not one way to do it: The one that will work best for you in reality is probably going to be a combination of one or more of those different strategies.
Planning an exit strategy is a vital aspect of any investment journey, ensuring a smooth transition to a carefree lifestyle. By sharing the experiences of seasoned investors like Steve, Mark, and Sue, it becomes evident that a balanced and methodical approach, coupled with a focus on the ideal holding period, can yield exceptional outcomes. Each investor’s journey is unique, so it’s crucial to assess your individual goals.
Remember our consultants will work with you to map out the right exit strategy for you and your goals.