What Makes You Pass on a Deal?

Question

I’ve been noticing how easy it is to get excited about a deal before really stress-testing the numbers.

A property can look solid at first glance — decent spread, good area, simple layout — but once you start adding rehab surprises, holding costs, lender fees, and a slightly softer resale number, the margin can shrink fast.

As I’m learning how experienced investors underwrite deals, I’m realizing the “pass” decision is often just as important as the “buy” decision.

Curious from those actively buying right now:

What’s the first thing that usually makes you walk away from a deal?

Rehab risk, ARV uncertainty, financing terms, seller price expectations, or something else?

Kenneth Garrett · Answer

@Jacari Morrell

There are a few indicators for me.  I’m mostly a BRRRR investor, but have done 6-7 flips.

1. Know your market area.  This makes realizing whether something is possible or not.  Being aware of ARV of the property and the market rent is key.

2. I don’t care what they are asking for on price.  The only number that matters to me is what it can be and what it takes to get there.

3. This is why your market is essential.  That way you know when something comes across your desk you know what the value can be.

4. Of course, rehab numbers, holding and closing cost are important as well.  When you know your market numbers, I can tell in a few seconds or minutes whether it’s worth digging into further.

Bo Smith · Answer

The first thing I usually walk from is ARV uncertainty. If the comp data is thin or the property is in a transitional area, I can't underwrite confidently enough. I'd rather miss a deal than chase one where I'm guessing on the back end.

But honestly, it's usually the rehab risk that kills deals for me before ARV does. A contractor can quote you 0k and it turns into 5k pretty fast once the walls are open. So I look at the property condition closely and I mentally add 15-20% to any estimate I get. If the margin still works with that buffer, I move forward. If it gets thin, I pass. A deal only works if it survives the things that go wrong.

Financing terms are real too -- I've walked from deals that penciled fine on paper but required too much of my own cash out of pocket or had terms I didn't like. At some point the risk-reward just isn't there.

When you stress-test your numbers, what contingency buffer are you building into your rehab estimates -- and is that actually holding up when you're executing?

Lipa F. · Answer

In my opinion, there are very few true deal killers — the key is usually adjusting the purchase price to match the risk. If the ARV isn’t clear, I underwrite using the lowest reasonable resale number. If rehab costs are uncertain, I estimate on the higher side. Most risks can be managed if the numbers leave enough room.

Richard Golding · Answer

The first thing that makes me walk away from a deal is a spreadsheet that relies on a best case execution timeline to show a profit. Rookie investors treat time like a static line item but experienced operators know that time is a compounding velocity penalty that expands exponentially every single day your capital sits idle.

The biggest flaw in the forum discussion is the idea that you can just add a generic fifteen percent buffer to your rehab estimate and call it a day. That is a textbook retail approach that completely misses how real project risk manifests. If you are analyzing a deal you have to separate your risks into structural fixed liabilities and operational velocity killers. A bad foundation or a buried oil tank or a massive sewer line failure will hit your budget instantly but a delayed municipal framing inspection or a subcontractor who walks off the job to chase a higher paying project will destroy your margin through compounding hard money interest carrying costs and elevated builder risk insurance premiums.

The deal killer is not the high cost of the lumber or the plumbing fixtures. The deal killer is a thin spread that cannot absorb an extra ninety days of field delays and still yield your target return. If a project requires a flawless production schedule and a peak historical comparable sale just to hit a twelve percent net margin you drop the file and move on to the next opportunity.

Bruce Woodruff · Answer

It's all about the bottom-line almighty dollar. If you're fairly certain about your rehab budget AND your potential selling price, then there is just the profit margin to consider. Is there enough $$ to make it worthwhile and go through the process?

Frankie Vozzi · Answer

For me, it's usually when the deal only works if everything goes right.

If I need the rehab to come in perfectly, the property to sell at the top of the comp range, and the timeline to stay exactly on schedule, I'm probably passing.

I've seen plenty of deals that looked great on a spreadsheet but had almost no room for error.

The older I get around real estate, the more I value margin and flexibility over squeezing every last dollar out of a deal.

Eric Gerakos · Answer

Tenant pool.

What Makes You Pass on a Deal?

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