3 Deal-Killing Reasons I Passed on a Tempting Fix & Flip Property Last Week

by | BiggerPockets.com

Hey there, BP! I try and keep at least one fix and flip moving at any given time, and our current one is finishing up. So I’m on the hunt! I have my feelers out to my realtors and wholesalers and have been doing some “driving for dollars” on my own as well. Last week we came across a deal that at first looked fantastic, but after further investigation, we ended up passing on it. I thought I would share some things that ended up killing that deal in hopes that you look out for the same on your fix and flip hunts!

The Deal

The property came across our plate from a realtor we’ve done a few flips with. She’s been a great asset to us and has forwarded us several deals over the last few years. We keep our realtors loyal because we commit that they will get first crack at the resale if they bring us a deal. This property was bank owned and in an A+ neighborhood. The school system is among the best in the area, and the house is walking distance to the downtown shops and restaurants.

It was a sizable home so there was no need for an addition to get to the typical square footage in that area, and it had 3 bedrooms and 3 baths. No show stoppers on paper. The listing price was $160,000 and After Repair Values in that area are north of $400,000. The house even had some build it “wow” factors, like a sun room with a double high ceiling. All great signs. This one didn’t seem like it was going to last long so we set up a tour for the next day.

Related: Interview: A Realtor’s Insider Secrets for Selling a Fix and Flip FAST

The Tour

When we pulled up there were two other cars in the driveway; another showing was just finishing up. No worries. We waited in our car to be respectful for a few minutes. While we were waiting, another car pulled up — and then another. I realized there was no reason to wait any longer so we went in. While we did our walkthrough, there must have been no less than 10 other parties going through the house. Most of them were end buyers that couldn’t believe a house in this area was priced so cheap. This could have been because it was a Sunday afternoon, typical “go see houses” time for end buyers.

So let’s use a baseball analogy for analyzing this house. Three strikes and you’re out!

3 Reasons I Passed on a Tempting Fix & Flip Deal

Strike 1: Competition

The first strike is the amount of competition on the deal. I hate competing for deals, especially bank owned ones where there is no homeowner to make an emotional connection with or do something creative like send them a YouTube video with our offer. Competition from other flippers on a fix and flip like this is saying “Ok, so who wants to make the least amount of money and take the most risk?”

All it takes is one fool to drive up the price and take a deal to a bidding war. They probably didn’t factor some things into their rehab cost or left out a contingency for “just in case” expenses. Either way, going up against someone like this on deal is going to cause you to bid higher to win the deal. Another competitor that can drive up price is end buyers. If they have the resources and the knowhow, they can pay more than you can because they are not looking to make a profit. Either way, when there is a bunch of competition on a deal, either find a way to make your bid stand out or really sharpen your pencil and put your best foot forward when you make an offer.

Strike 2: Unknowns

When we started the walkthrough, it became immediately obvious that the house had been infested with mold. It reeked. Further examination uncovered the source: the basement was covered in black mold. The cause was not immediately obvious, but it was clear that the basement had flooded in the past, and the effect of that flood was mold all over the place. It was so bad it was all the way up the 8 foot walls and onto the ceiling tiles above. There was no telling how far it went from there. It could have been behind the walls in the rest of the house.

The bottom line is that we wouldn’t know the extent of the damage or the repair needed until after ownership.
While in the basement, I saw that the foundation walls had major horizontal cracks. I don’t want to get into structural engineering here, but horizontal cracks in a foundation are very bad. They really compromise the structural integrity of the walls and can cause them to buckle over time. Horizontal cracks don’t show up out of nowhere, they are a symptom of something else. It wasn’t clear what that was, and the repair was far beyond just patching the walls.

The mold, the structural issues, and a few other things in this house are all “unknowns.” These are things where you just won’t know the real story until you get deep into the house. We once found out that an entire exterior wall of a house had been eaten by termites. The bad news is that we found that out after we owned it and had to deal with it ourselves. It’s impossible to budget for these things because you don’t know the full story, so how can you budget to remediate? You really can’t completely avoid unknowns on a flip, but you can do your best to limit them. I always put a line item in my budget for “contingencies,” which accounts for cost overruns or an unknown item coming up. For most flips I go with 10% of my budget for the contingency factor. For a house like this one, there were too many unknowns to make a budget that I could stand behind comfortably.

Strike 3: Time

The rest of the house was in deplorable condition. There wasn’t anything that we couldn’t deal with, but the problem was that EVERYTHING needed something. The furnace was shot. The kitchen was dated, and so were the bathrooms. The hardwood floors needed sanding, some of the windows were broken, and the roof needed to be replaced. I could go on. There was money in the deal to do all these things, but the problem was that it would take time and coordination to do all these things. I try and find deals that have a few things I don’t have to touch. This saves me time and energy.

Related: It’s Entirely Possible to Fix & Flip 10 Homes at Once: Here’s How

Time can kill your fix and flip. If you are using financing (we typically use private lenders or banks), time costs you another interest payment every month. If not, there are plenty of time-related items like real estate tax, insurance, and utilities that will eat into your profit each month that you own a flip. Taking too much time on a deal also has another, indirect factor — opportunity cost. If you can sell that flip fast, you can be on to the next project and making another profit. If you are locked up for a long period of time, you may have to put all your resources into that deal to ensure its success. There is only so much time, so make sure that the deals you get into don’t take so much of yours that you miss out on other deals that will take you to your goals!


So for this house… it’s strike 3, you’re out! We walked back out the driveway and agreed to pass on the deal, all the while more potential buyers were pouring into the house. I have no doubt that the house is already under contract because of the amount of traffic it was getting, and I’m sure it went for well above the asking price. I wish the buyer the best. I hope they can remediate all those issues inside their budget and create a great home for someone. I’m glad I’m not that buyer, though!

So what are your thoughts? Tell me about your show stoppers that will cause you to walk out of a potential deal.

I’m looking forward to having a good convo with all of you on this in the comments section below!

About Author

Matt Faircloth

Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.


  1. I would say good call on that house. Especially since the house itself seemed to be uncomfortable in that neighborhood and wanting to move. It wasn’t exactly just getting settled into the area, it was wanting to MOVE!

    • Matt Faircloth

      Hey Jesse,
      I actually thought about that too, but I think there was a major issue with groundwater, which was what was causing the buckling foundation and flooded basement. Not sure though. I was afraid that a new home would have the same issue. I actually think that this house is built in a location that should have never had a house on it.

      Since you asked, I looked on the MLS. The house is still showing as Active. Since it’s bank owned I’m not too surprised. They may still have multiple bids and haven’t locked it down yet. I will be checking regularly and it it goes in the next week or two I’ll post the price in the comment section.

      Take care,


  2. jon rylander

    Great post Matt

    I’ve been trying to practice analyzing properties for a fix and flip and this is what i came up with trying to guesstimate some numbers. Let me know if I am missing anything that i should be considering or if I am way off with my numbers. I try to be conservative with my numbers and guess a little high for my expenses. Lets say we purchase the property for $200,000 and rehab will be around $100,000.

    Purchase Price = $200,000

    Rehab Costs = $100,000

    Closing Costs (buy,sell) = $10,000

    Holding costs (6 months) = $8,000

    RE agent Commissions (5%) = 400,000 x .05 = $20,000

    Total Skin in game = $338,000

    Sells For = 400,000

    Pre-tax profit = $62,000

    Captial gain tax (25%) 62,000 x 0.25 = $15,500

    Total Projected profit = $46,500

    To me this doesnt look like a bad deal. If I could make $46k in 6 months I would be a happy camper.
    Let me know what you think. Again I’m new to this and just trying to practice analyzing a fix and flip, any input would be appreciated

    • Matt Faircloth

      Hey Jon,
      Thanks for reading! I read through your numbers. Here are my thoughts…
      1. I like to try and buy my rehabs for around 50% of ARV so your purchase price to sell price works.
      2. I don’t know the scope of work so I have not idea if 100K is realistic. Make sure you know how to get a solid estimate on rehab costs, whether that’s through a General Contractor or subs, or from your experience.
      3. Your closing costs, commission, etc… all seem good.
      4. The one thing i really question is your carrying costs. What you show here works out to be 5.1% of the purchase and construction costs on an annual basis. Unless you are laying down a bunch of equity, you will need to increase that number. Consider real estate taxes and insurance while you own the place too, along with your financing costs. i typically use private money and finance the entire deal with the private money lender so my carrying costs are higher.

      There are a few free flip analyzer spreadsheets on BP, and a few that you have to pay for that are well worth it. I would run your deal through one of those to be sure also.

      Best of luck!


  3. Brock A.

    Great post Matt – thanks for sharing your experience! I wonder if any of the other houses in the immediate vicinity have had foundation/flooding problems. Is there a way to find out? Can an insurance agent check for flood claims on neighboring houses?

    When you analyze a house for flipping, do you always check the flood plain? Seems like for a flip it might not be as essential, but a different story for buy and hold. What are your thoughts?

    • Matt Faircloth

      Hey Brock!

      Had we moved forward we would have checked to see if it’s in a flood plain before making an offer, but we never got that far. When we get insurance on the home our insurance company requires flood insurance, which is more expensive. you should still factor it in on a fix and flip because the new buyer will have to buy flood insurance also, which increases their costs. Same with real estate taxes that are too high for the area. Of your buyer is buying on monthly payment as many people do, they won’t be able to pay as much for the house.
      I hope that helps!

  4. Mindy Jensen

    Hey Matt. I agree with the other commenters, good call. We recently looked at an awesome house to flip. Awesome in that it was UGLY! Priced low, it would have made a great flip or a great rental, once rehabbed. Until I went into the basement.
    The “foundation walls” looked like brick. Not brick and mortar, just brick. Stacked-ish. Some of the bricks had come out and been spray-foamed back into place. Not the high-quality repair job I was hoping for. I know nothing about stacked-brick foundations, and didn’t want to learn on the job. Add in that my market is ultra-super red-hot and I knew I would be competing with other flippers, buy-and-holders, and actual homeowners and I was out. It went under contract in 4 days, as does most in my area.

    • Matt Faircloth

      Hey Mindy,
      Thanks for reading and for the comment. I have never seen a foundation like you are describing. I have seen bricks with mortar but normally they are sitting on cinder blocks. I see a lot of field stone foundations here in NJ, which is pretty much rocks they found when they were digging the hole for the foundation stacked on top of each other with mortar in between. Those scare me too!
      Take care!

  5. David H.

    I’m going to post a controversial bidding strategy. Bid high and win so you can be at the negotiating table. From there, you can start to get a better idea of the value, and adjust the price accordingly with the seller. If they don’t budge, back out of the deal at the last minute and get your emd back.

    The price will likely not be as aggressive, and bidding will likely tame. You should be able to navigate your way through and even come out paying under the asking price.

    Bottom line, bidding doesn’t cost cash, just time. I make my agents earn their keep, and they’ll gladly play along and help me negotiate these deals. If you’re not afraid to make an offer that you can back out of anyway, you’ll be in a great position to find good deal flow.

  6. Chris Newman

    Hi Matt. Thanks for a great and enlightening post. I appreciate your mentioning the issue of “lost opportunity costs” as a function of time.

    What keeps me from getting caught up in the wrong deals (usually, at least), is the idea that “there’s always another deal out there, probably even better than this one.” This has proven true over decades, so it’s easy to walk away from the marginal deals, keeping my time and cash free for the exceptions.

    Looking forward to more of your articles.

    • Matt Faircloth

      Hey Jimmy,
      Thanks for leaving a comment. For that ARV we look for deals that need all the cosmetic upgrades (paint, flooring, bath & kitchen) and typically one or two items that are show stoppers for end home buyers to take the house in it’s existing condition as a “fixer upper” on their own. These things would include a damaged roof, damaged or non functional furnace or AC unit, plumbing issues, etc… I look for one or two of these things that I can repair with my team but would prevent a home owner from buying with a mortgage because the house wouldn’t appraise or pass any inspection. Too many of these things and it becomes problematic, like the deal we talked about in this article.
      I hope that helps!

  7. Mike Moreken

    I would cross off #1. No worry about competition, sure bozo’s can drive up price, but if you are unemotional and will stick to your #, no problema other than wasted time/more write-offs?

    Mold, Foundation GREAT call. That alone would have killed it for me.

    I saw ad today via email about a 6 unit building in Trenton. Shape of property a little scary. The clincher was LL was paying water + sewer.

    Ha, look at the property close to where meet is held a couple of doors down. Open windows! I wouldn’t want to mess with that at this time.

  8. Anna VW

    Hi Matt,

    Thanks for the interesting read. I just joined this wonderful site and I can’t wait to explore it with much more detail. This article was specifically of interest since I flipped and sold my first property in a 3 month span in 2007 and made a killing! I can’t wait to do another in the next year 🙂

    Best Wishes!

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