When Should You Walk Away From A Real Estate Deal?

The practice of flipping homes has been around for decades, but in 2017, more homes were flipped than ever before. Flipping is defined as the purchase and sale of a property in the same 12 month time frame. In 2017 alone, 207,000 homes were flipped, along with a decade-high 138,410 people or companies involved in those flips. So when should you walk away from a real estate deal?

Despite the record-high investments in fix-and-flip properties, making a profit is far from a guarantee. Maximizing return-on-investment (ROI) on a fix-and-flip property requires extensive knowledge. This includes best practices throughout every step of the process: securing the property, renovations, and the eventual sale.

Arguably the most important part of that process is the initial purchase of the fix-and-flip property. Finding the right property could make all the difference in your ROI.

For those unsure about a deal, consider these factors in determining if you should move forward or simply walk away.

Establish parameters

Preparation is key when it comes to fix-and-flip properties. This is especially true during the search and evaluation steps of the process.

If there’s uncertainty regarding property, a diligent practice would be to compare it against your parameters.

Does this property force you to expand outside of your comfort zone? If so, it might be best to walk away from the deal, especially if you have a defined budget. A property that forces you to invest more than what is in your budget is likely to lose out on ROI.

Stick to your guns and stay within the parameters and budget you set for the project beforehand.

Does the house require more work than initially thought?

At first glance, the property your considering for a fix and flip appeared to only need cosmetic changes, along with new appliances and landscaping work.

Hopefully, prior to purchase, you’ve asked for an extensive home inspection. The inspection shows the house is in need of greater repair than initial projections. Now, in order to get the house ready to sell, you have to overhaul the plumbing, move walls and other extensive projects.

The quicker you can flip the home and make a profit, the better. Of course, not all fix and flip properties are going to require only smaller, cosmetic changes. But if the reason the property stands out was the lack of major repairs, then perhaps it’s best to walk away.

Is it an off-market deal?

Not all real estate deals are equal and when it comes to purchasing a fix and flip property, an off-market deal can be the difference between sticking with the purchase or walking away entirely.

Generally speaking, off-market deals allow buyers to purchase the home at a discount, a key aspect of any successful fix and flip strategy. With a greater discount on the home purchase, fix and flippers have more room for positive ROI, assuming they stay within their parameters, as we discussed beforehand.

Not every deal is an off-market deal, and that’s ok. But if the property in question is an off-market deal, chances are you’ll be able to purchase the home at a better value. In that case, you’re afforded more room for error, making the purchase potentially a worthwhile investment.

Fix and flip homes represent a great opportunity for investors to profit and take advantage of the high demand currently present within the housing market. However, the key to a successful fix and flip venture is to find the right properties to invest in. By considering these factors, you’ll be able to better determine whether the property is worth pursuing and possesses the earning potential you seek in a fix and flip property.

ABOUT BAY MOUNTAIN CAPITAL:

Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans over that time period. We specialize in financing all types of residential and commercial property investments throughout Texas. Using a common sense and value added approach, we strive to incorporate these principles into our underwriting and closing processes. We are a Dallas Hard Money Lender, but we do business in Austin, Houston and beyond!

As a direct lender, Bay Mountain Capital can close a loan within one day after receiving clear title and a complete file. The process generally takes from two to three weeks, but can be accelerated where circumstances require it.

We are an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.