A solid plan and well executed research go a long way to helping you make the right decisions when it comes to investing in pre-foreclosures and foreclosures. The more information you have about your investment, the lower the chance of a rude shock later.

In particular, pre-foreclosure and foreclosure investments require you to bear in mind and answer three questions: (1) What is the current market value of the kind of property you plan to invest in? (2) What is your plan for making money on this investment? (3) How do you plan to fund the investment?

Unfortunately, it's easy to neglect all potential exit strategies for a given investment in the event that the desired exit strategy is no longer appropriate. It's simply not advisable to put all your eggs in one basket, when investing! You need one or more alternative plans to deal with market conditions changing or souring. Such an alternative plan is called an exit strategy.

Different exit strategies may appeal and be appropriate, depending on your goals, circumstances and needs. You may want immediate liquidity and profit. Or you may want a long-term income stream. But in any case, you will need other possible exit strategies in case your plan doesn't work. Here are three commonly used exit strategies.

1. Renting Out The Property

While being a landlord has its share of hassles, it is a legitimate way in which you can hold on to a property over time and yet monetize it. It is one of the most traditional exit strategies and has worked for a large number of investors over the decades. It is also one of the most commonly used exit strategies due to the ease of the process and the relatively temporary nature of the arrangement (i.e. you can decide whether or not to sell the property later).

2. Rent-To-Own Arrangements

A common concern that investors have when putting their properties up for rent is whether their properties will be well cared for and maintained. This concern is alleviated with a rent-to-own arrangement. Such an arrangement involves the tenant paying an extra fee up-front when renting the property, in order to have the option of purchasing the property at a later date. Since there is a likelihood of the tenant owning the property later on, they are presumably more likely to take better care of the property than a regular tenant. There is also the upside of collecting a non-refundable fee at the outset, which may range anywhere between three to five percent of the value of the property.

3. Selling With Owner Financing

If, as an investor, you are willing to finance the sale and also act as a lender to the buyer, an "owner financing" arrangement may appeal. In this scenario, a potential buyer avoids having to go to traditional lenders such as banks where he or she may or may not qualify for a loan.

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