Why I started saying No to "Good Deals" Part 1

[Carl Mcknight]

Why I Started Saying No to "Good Deals"

I now think real hard before saying Yes on a “Good Deal”.

You ever have this happen: The deal looked good on paper. The broker was enthusiastic. The numbers worked — if everything went right. And you end up talking yourself into getting it?

I've owned and managed 50+ units. I've been a private lender, a hard money lender, done fix and flips, run the BRRRR strategy, dealt with multiple evictions, squatters, and had tenants destroy properties. I've learned most of what I know the expensive way.

And the most expensive lesson of all was this: a "good deal" is whatever story you're willing to tell yourself at the time.

The shift happened when I started underwriting downside instead of upside.The vast majority of brokers or agents pitch you the upside, and rarely inform you of the downside. Rents at stabilization. Occupancy at 95%. CapEx at zero because "the roof was just replaced." The pro forma always works. That's the point of a pro forma. But what about when things don't go as planned?

I started asking a different question: what does this deal look like if everything goes wrong?

What if occupancy stays at 75% for 18 months instead of recovering in 6? What if the plumbing turns out to be galvanized and I'm looking at a $75,000 surprise? What if the management fees I normalized away were actually hiding the fact that this property is self-managed and operationally stressed?

If the deal still works at worst case — I'm interested. If it only works at best case — I’ll pass on it.

That single filter has changed how I invest, and how I look at deals now.

What "no" actually looks like in practice:

I passed on a deal last year where the cap rate looked attractive at 9.5% Seller's NOI. When I normalized the management fees — which had conveniently dropped to zero in the back half of the trailing 12 — the real cap rate was closer to 8.1%. At the asking price, the debt service barely covered the mortgage. The deal only worked if I executed a full lease-up in under a year on a 1972-vintage building with deferred maintenance I hadn't even inspected yet.

That's not a deal, that’s being overly optimistic with a down payment attached.

I passed. The property is still on the market.

The hardest part isn't the analysis. It's the discipline.

When you've been looking at deals for weeks and nothing has clicked, the temptation is to lower your standards just enough to make something work. To round up on the rent projections. To assume the CapEx won't be as bad as it looks. Maybe even telling yourself you'll figure it out once you own it (thats been an expensive education for me, don't do it).

That's how you end up owning a lot of problems instead of investments.

I'd rather pass on 10 good deals than own 1 bad one. The bad one doesn't just cost you money — it costs you time, focus, and the money you should have deployed somewhere else.

The right deal doesn't need you to talk yourself into it.

The vast majority of us on this platform don’t have millions to deploy into RE. If your like me, you value your money and the time it took to make it, don’t go blowing it on buying something that is being sold to you as a “good deal” unless your numbers are very solid. Also, there is really very little about “passive” when you are investing in RE, it’s actually a decent amount of work and some headaches along the way.

How about you, have you passed on any “good deals” lately?