Deal Making: Knowing when to walk away

It can be tough to manage expectations when you think you’ve landed a good multifamily deal. Even if you suspect there’s a very real chance the deal won’t close, it can be hard to handle when something goes awry and you need to walk away. Fortunately, deals that die do leave behind a valuable lesson, and give you a better chance of spotting red flags earlier on and establishing strong guiding principles for the future.

Here are some indicators that can help you make your decision:

Time is not on your side

Sometimes, you’ll encounter owners who need to unload a building quickly for reasons unrelated to its condition. This can work to your benefit as it allows for more seller concessions, but it could also mean you won’t have enough time to complete your due diligence or work with the lenders and teams you normally do. When you have a vetting process in place that works for you, it’s important to follow it. Cutting corners never works in real estate deals, and it often leads to costly mistakes.

The property’s not in your wheelhouse

It’s fine to step outside of your comfort zone; that’s how successful investors evolve. However, it’s not a good idea when it’s for a property type that you had no interest in owning or one that doesn’t fit into your investment goals. If you absolutely loathe Class D properties that usually need a ton of work and may not be in the best of areas, avoid these types of deals no matter how good they look on paper. You need to decide what you want to invest in and what you don’t in terms of property type and stick to that criteria. Otherwise, you will find yourself mired in an investment you have no interest in being a part of. When you lack enthusiasm for an investment, you’ll be left with a less-than-satisfactory result.

It’s just not right

Although gut feelings will never replace research, logic and due diligence, that doesn’t mean you should ignore your immediate instincts entirely. If you feel something is wrong with a multifamily deal, you’re probably right, and it’s better to walk away before you invest too much time or any more money into it. Look that gift horse right in the mouth; you are, after all, going to pay something for it.

Successful multifamily investing involves knowing when to sign and when to walk away. Listen to your instincts, stick to your investment criteria and follow your process to stay in control and on track.

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