Numbers look good, gut still feels wrong

[Sean Cassidy]

I'm looking at a deal here. It's a 3 unit, one of them is gutted, the other 2 are ok. It's a C building for sure, but in a decent area. It could be quite nice with some effort, and it already has cash flow from the renters that are in place.

I ran the numbers and they look good. But my gut feeling was wrong. So I built in a 50% markup on my rehab figuring this will cover pretty much anything that pops up, numbers STILL. LOOK. GOOD. Buuuuut, my gut still doesn't like it. 

So I got some comps and changed the 70% rule to the 50% rule just for kicks. Using 50% of ARV minus my inflated rehab estimate my calculator tells me to offer the seller an extra $100.00 over asking price. My gut still says not quite right.

I can't tell if my gut is thrown by a rare home-run, or if there's something I'm missing here. 

39.9k asking

45k rehab (with 50% markup) 

125k+ for comps

This alone looks good.

If I offer 35k they'd take it. Why is my gut saying no... What am I missing? !

[Colleen F.]

You don't want to do this deal, I can't tell you why but you don't.  Area makes you nervous, you don't believe the numbers either for rehab or rent, location has some unacceptable aspect you can't get by.  You know what it is, we don't.  

Your gut is two things emotion and/or knowledge.  If it is just emotion (i.e. you are just anxious because it is your first deal or a new area, most money you ever spent) that could be it.  That you need to try to get past. If you sense something is wrong with the deal you need to put your finger on what aspects that is. Since you are playing so much with the numbers I would say start there. Any number you think is wrong?   Go over the numbers with a trusted associate.

The last thing it could be is that your gut is telling you this isn't your goal activity and/or market. No matter how good the deal if you don't want to own it, you don't.  It could make money. It could be an awesome deal but not what you want to do.

In the end if you don't fell comfortable and you can't get past it you need to pass.