Just like most investments, real estate investments can come in all shapes and sizes. It’s knowing how to evaluate the deal, when to move forward and when to walk away that can take you from beginner investor to real estate tycoon.
While there is no perfect formula for evaluating a real estate deal, below are a few signs that it might make sense to walk away from a deal.
#1. It’s Outside of Your Financial Model
All real estate investors have some kind of financial model that helps them determine whether or not a project is worth the investment. Those who invest in rental properties, for example, often abide by the 1% rule, which states that the property must rent for at least 1% of the purchase price in order for it to be a “good deal.” Some use 2%.
Before you start investing in real estate deals, make sure you’ve established how you financially vet your opportunities —and stick to it. This should be the baseline for your decision making.
#2. Your Due Diligence Gets Hairy
In a real estate deal, your due diligence period is the time when you should thoroughly vet the deal. This is when the property is inspected and appraised. It’s also when you’ll review any financial documents, rental history, developer plans, and more. Often, you should trust your gut. If you have doubts, investigate them and then make a sound decision based on your research.
This is also the time to make sure you’ve reviewed comparable properties and deals to ensure you feel comfortable with pricing.
#3. Negotiations Go South
Once you’ve found the right deal and have exhausted your due diligence, you may decide to renegotiate your position based on new information. If you’re a flipper, for example, and you find that the property needs a new roof and air conditioning, it might be time to renegotiate the purchase price.
If negotiations don’t go your way, don’t be afraid to walk away. There will be plenty more properties to choose from —and overspending isn’t necessary.
#4. Not Everyone is on the Same Page
Lastly, if everyone on your team is not on the same page, it can cause big problems for your real estate project. As a flipper, for example, you want all your investors to be on the same page before you really dig in. Open lines of communication and a thorough plan can keep everyone on the same page. If it doesn’t seem like that’s going to happen, walking away from the deal may be a good idea.
Finding the Right Deals
Whether you’re a flipper looking for investors or an investor looking for the right real estate deal, at Patch of Land, we help connect the two. Learn more about the opportunities available to you via our platform today.