Exit Strategy
Quick Answer
The plan for how an investor will repay their loan — typically by selling the property or refinancing into long-term debt.
Definition
An exit strategy is the investor's documented plan for repaying a short-term investment loan. For fix-and-flip loans, the primary exit strategy is a sale — the investor sells the renovated property and uses the proceeds to pay off the loan. Alternative exit strategies include refinancing into a DSCR rental loan (a 'flip-to-rent' strategy) or a cash-out refinance. Lenders require a clear, credible exit strategy before approving any short-term investment loan.
Why It Matters for Flippers
Exit strategy is the lender's primary protection against loss. If you don't have a believable exit within the loan term, the lender won't close. More importantly, a clear exit strategy keeps the investor disciplined — it forces realistic timeline and pricing assumptions rather than hoping for above-market sale prices.
Example in a Flip Deal
An investor's exit strategy for a 12-month flip loan: complete renovations in 4 months, list the property at or below comparable sales, target a 60-day sale, and close before the 10-month mark to avoid extension fees. The backup exit strategy: if the property hasn't sold at 9 months, refinance into a 30-year DSCR rental loan.
Related Terms
Fix and Flip Loan
A short-term real estate loan designed for investors who buy, renovate, and resell properties for profit.
Bridge Loan
Short-term financing used to 'bridge' the gap between buying a new property and selling or refinancing an existing one.
Holding Costs
The ongoing expenses an investor incurs while owning a property — including interest, taxes, insurance, and utilities — before it is sold or refinanced.
ARV (After Repair Value)
The estimated market value of a property after all planned renovations are complete.