We Almost closed on an $18M Deal — here's why we walked away.

Multi-Family and Apartment Investing
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We Almost closed on an $18M Deal — here's why we walked away.

Garret Rumbea
Inland Empire, CA · Member since 2017 · 151 posts · 79 votes

It was the end of August.
We spent about 6 months working on a deal.
Got it under contract. 
It looked like a home-run.

$18M purchase price. 104 doors. 
Great submarket in Phoenix.
Numbers lined up.

We toured the property in person, walked every building. 
Everything looked good.

But during due diligence, we found out the roofs the seller said were "brand new" weren't. 
They were shot. Full replacement needed. 

That changed everything.

We went back to the seller and asked for a credit to cover the cost. They said no. 
We tried to make it work, but at the end of the day, it just didn't make sense.
Moving forward would've meant putting our investors' capital at risk and hoping we could make up the difference later. 

That's not how we operate.

So we walked away. 

Was a tough pill to swallow. 

We'd spent hundreds of hours on that deal and paid for all the third-party reports. 
But it was the right call.

Sometimes protecting capital means walking away from a deal you really wanted.

Here's what that experience reminded me of:

- Don't fall in love with a deal. Fall in love with your standards.
- Due diligence isn't just paperwork. It's how you protect your people.
- And when in doubt, choose discipline over emotion.

We lost some time and money on that one, but honestly it made us sharper. Our process is tighter, our team's stronger, and our conviction in what we stand for is even clearer. 

Sometimes the best deals are the ones you don't close.

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Allan C.
Rental Property Investor · Member since 2018 · 828 posts · 811 votes
1y

Perhaps I'm getting caught up in semantics, but I'm struggling to understand how a "home run" deal becomes infeasible over a new roof on an $18M valuation.  I know it depends on layout, but I'm guessing a new roof will cost $200-300k max.

that's not chump change, but I wouldn't walk away from a home run for 1.5% valuation difference. Seems like your margin was fairly tight. The time you spent chasing that deal was worth more than $300k. 

I agree with your discipline sentiment, but people should always value opportunity cost as well. 

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  • L Marquez
    Member since 2025 · 10 posts · 10 votes
    1y
    Good to know-thank you for sharing.
    1Reply
    • Garret Rumbea
      OP
      Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
      1y
      Quote from @L Marquez:
      Good to know-thank you for sharing.

      🙏🏼 Appreciate you

      0Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 828 posts · 811 votes
    1y

    Perhaps I'm getting caught up in semantics, but I'm struggling to understand how a "home run" deal becomes infeasible over a new roof on an $18M valuation.  I know it depends on layout, but I'm guessing a new roof will cost $200-300k max.

    that's not chump change, but I wouldn't walk away from a home run for 1.5% valuation difference. Seems like your margin was fairly tight. The time you spent chasing that deal was worth more than $300k. 

    I agree with your discipline sentiment, but people should always value opportunity cost as well. 

    6Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1y

    I don't get it either. 

    Roof condition is something that my brain checks automatically while I get out of the car the first time I see a building. And while it's not always easy to tell from the ground if a roof is on it's 2nd third or last third of its life - the difference between brand new and totally shot is normally pretty obvious.

    And the cost of the roof should have been more than offset by the interest rates getting lower of the last 6 months.

    There must be more to that story..

    2Reply
  • Garret Rumbea
    OP
    Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
    1y

    I get what you're saying. It was a home run initially because everything lined up. we were getting it at a great basis in a strong submarket, straightforward biz plan, and returns that made sense for a core plus deal. 

    once we found out three roofs needed full replacement, which wasn't disclosed prior to going under contract and actually presented as brand new, and having investors wire funds already, it just wasn't the deal we initially underwrote or what was shared to our investors. Probably could've still closed, but would've meant changing assumptions and risk profile after the fact. might not sound like a big deal but in syndications esp once you start raising capital and setting investor expectations around a certain type of deal you can't change the story midway without compromising trust. 

    0Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 828 posts · 811 votes
    1y

    Ok the story is making more sense now. But if the deal was still good then why not just take the difference out of your promote? Was the sponsor group not highly confident in the underwriting to begin with? 

    I agree with your overall premise, but perhaps there's a learning for the sponsors as well. Maybe build in more conservatism in your underwriting and complete DD earlier. I inspect exterior in parallel with interior, so within a few days of getting under contract I have a clear idea of the renovations. 

    $18M is a small deal to syndicate, so perhaps the group is still early in REI journey. However, it's great to see you focusing on Investor Relations and not just trying to land a deal. I highly applaud the sponsor group for doing that!

    0Reply
  • Garret Rumbea
    OP
    Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
    1y

    appreciate that. we tend to focus on 100+ doors around $8-12m for where we're at right now. on this one we partnered with another team so taking it out of the promote wasn't as straightforward. either way number still worked but once facts changed wasn't the same deal.

    0Reply
  • Lawrence Kessler
    Member since 2025 · 8 posts · 0 votes
    1y
    That’s good to know and shows the importance of doing DD on any deal. I recognize the significance and peculiarity of each deal and given your efforts at reaching a compromise by asking for credit, it seems to me the seller didn’t want to do the deal. I offer financing in different models for real estate deals and guarantee a fast closing.
    0Reply
    • Garret Rumbea
      OP
      Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
      1y
      Quote from @Lawrence Kessler:
      That’s good to know and shows the importance of doing DD on any deal. I recognize the significance and peculiarity of each deal and given your efforts at reaching a compromise by asking for credit, it seems to me the seller didn’t want to do the deal. I offer financing in different models for real estate deals and guarantee a fast closing.

       appreciate that. every deal's a lesson.

      1Reply
  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    I'm having a difficult time wrapping my head around spending hundreds of hours on an $18M acquisition before physically inspecting the roof. It's one of the easiest diligence items to inspect. The cost of the roof replacement appears to be a rounding error in a "home run" $18M acquisition. With a true home run, it should be easy to go back to the bank for a revised loan amount to cover the roof replacement and should have negligible impact on the property's performance. 

    Was the change in performance expectations that compromised trust or was it the fact such a basic diligence item went unverified leading the LPs to question all other assumption's/diligence about the acquisition? Put yourself in the shoes of the LP's, I would begin questioning every deal assumption if I found out the sponsor never inspected the roof and relied on the seller's disclosure. What other disclosures were relied upon and never verified?

    [email protected]
    2Reply
    • Dylan Villano
      New to Real Estate · Denver, CO · Member since 2019 · 40 posts · 25 votes
      1y
      Quote from @Stuart Udis:

      I'm having a difficult time wrapping my head around spending hundreds of hours on an $18M acquisition before physically inspecting the roof. It's one of the easiest diligence items to inspect. The cost of the roof replacement appears to be a rounding error in a "home run" $18M acquisition. With a true home run, it should be easy to go back to the bank for a revised loan amount to cover the roof replacement and should have negligible impact on the property's performance. 

      Was the change in performance expectations that compromised trust or was it the fact such a basic diligence item went unverified leading the LPs to question all other assumption's/diligence about the acquisition? Put yourself in the shoes of the LP's, I would begin questioning every deal assumption if I found out the sponsor never inspected the roof and relied on the seller's disclosure. What other disclosures were relied upon and never verified?


       Thank you for your insight!

      0Reply
    • Garret Rumbea
      OP
      Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
      1y
      Quote from @Stuart Udis:

      I'm having a difficult time wrapping my head around spending hundreds of hours on an $18M acquisition before physically inspecting the roof. It's one of the easiest diligence items to inspect. The cost of the roof replacement appears to be a rounding error in a "home run" $18M acquisition. With a true home run, it should be easy to go back to the bank for a revised loan amount to cover the roof replacement and should have negligible impact on the property's performance. 

      Was the change in performance expectations that compromised trust or was it the fact such a basic diligence item went unverified leading the LPs to question all other assumption's/diligence about the acquisition? Put yourself in the shoes of the LP's, I would begin questioning every deal assumption if I found out the sponsor never inspected the roof and relied on the seller's disclosure. What other disclosures were relied upon and never verified?


      standard process for large multifamily properties. third party roof and pca inspections once under contract. that's when the issue came up. seller had represented the roofs as brand new, they weren't. in this environment it's normal to retrade when something material shows up in DD. seller didn't want to so we chose to protect capital and move on. nothing more to it. 

      0Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      1y
      Quote from @Garret Rumbea:
      Quote from @Stuart Udis:

      I'm having a difficult time wrapping my head around spending hundreds of hours on an $18M acquisition before physically inspecting the roof. It's one of the easiest diligence items to inspect. The cost of the roof replacement appears to be a rounding error in a "home run" $18M acquisition. With a true home run, it should be easy to go back to the bank for a revised loan amount to cover the roof replacement and should have negligible impact on the property's performance. 

      Was the change in performance expectations that compromised trust or was it the fact such a basic diligence item went unverified leading the LPs to question all other assumption's/diligence about the acquisition? Put yourself in the shoes of the LP's, I would begin questioning every deal assumption if I found out the sponsor never inspected the roof and relied on the seller's disclosure. What other disclosures were relied upon and never verified?


      standard process for large multifamily properties. third party roof and pca inspections once under contract. that's when the issue came up. seller had represented the roofs as brand new, they weren't. in this environment it's normal to retrade when something material shows up in DD. seller didn't want to so we chose to protect capital and move on. nothing more to it. 

      I don't buy multis but I've been to a few courses. Seems, "light" roof inspection, sewer inspection, parking verification and zoning confirmation are all what I would do before making an offer. If they wouldn't allow that, then they are hiding something. Then occupancy and expenses. But, hey, what do I know. 

      Thanks for the story. It didn't cost me anything. ;-)

      0Reply
  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    I'm aware of how diligence works in multi-family transactions. In your posts you acknowledged already paying for all third-party reports and investors wired money before the roof was inspected. I find it strange you were willing to pay for 3rd party reports before physically inspecting the building, particularly something as easy to inspect as a roof. Your post provided good insight into the importance of thorough diligence but more to the story of why this acquisition unraveled than merely missing the roof condition. 

    [email protected]
    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    1y

    Before spending six months, third party costs, wiring investor money...perform the physical inspection.

    0Reply
  • Garret Rumbea
    OP
    Inland Empire, CA · Member since 2017 · 151 posts · 79 votes
    1y

    most of that 6 months was UW, working w/ the lender, back and forth w/ boots on the ground team before we got it under contract since it was out of state. on large syndicated deals you don't typically get full roof access until that stage. we toured twice early on, roofs looked fine from the ground/aerial view (flat tpo). reports and investor commitments happen during that same period. 

    0Reply
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