What’s Your Exit Strategy and will it lead to your desired outcome?

You should always begin with the end in mind, in other words your desired outcome. Once your journey begins, it’s easy to get distracted and stray from your path of systematic investment.

Talk to your accountant about your initial setup and holding structure, as this will have an impact on the timing of your exit strategy.

Here are three exit strategies to consider:

Sell to pay off your debt. 

There are some pros and cons to this strategy. Many people feel the need to be debt free and their only financial goal is to pay off the family home.

From time to time you will hear people toss around the saying ‘work smarter, not harder’. But the majority of people don’t do this. Instead, they work hard to pay off the family home with income they earn from a job. And that is a big waste of time.

I realise most people have been conditioned to think this way by their parents and society as a whole. But that doesn’t make it a viable strategy just because your desire to reduce debt is due to societies deep-seated belief that all debt is bad.

Move one of your loans to principal and interest

Or, keep it as interest only but start paying off the principal from your excess cash flow. Once you pay the debt on this property, focus your increased cash flow on your remaining total debt.

Your interest repayments have been reduced because you’ve already paid off one house. This means you can pay off your next house in an even shorter time-frame.

This is called the domino effect.

As each loan or house is paid off, cash flow improves and subsequent loans are paid off at a faster rate until you are debt free.

This is a reasonable strategy to use while you are still working and it means you can have a stress-free retirement with a solid income.

To truly become debt free or to fast track your wealth building, you may need to use the selling exit strategy in conjunction with the domino effect.

Hand it over to your kids

If they are smart enough to handle it. You can use this strategy in conjunction with the others I’ve mentioned. Simply transfer control of a portfolio that’s held in trust by appointing a new company director.

The actual asset never changes hands so no tax is incurred. You are simply signing across control of the asset’s holding entity.

As with any exit strategy, the right ownership structure is very important.

Remember, your portfolio will be equity rich and positive in cash flow by the time you make an exit. An exit strategy is all about minimising tax and maximising returns.

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This article via Your Investment Property does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.