March 18, 2014 by Dymphna 4 Comments

When To Walk Away From A Deal

iStock_000004358211Small

As a real estate investor, finding the right property at the right price determines whether you make a profit on the deal…or not.

That’s why finding a property well under its market value is such a big deal and so tempting…

It’s what allows you to make the next deal, as well.

But sometimes, what looks like a great deal, isn’t.

You may not know this when you first see the property…

Although, when you do see the property for the first time and you hear that little voice inside your head telling you to beware, listen to it.

Sometimes our subconscious picks up things faster than our conscious, analytical brains do…

But that doesn’t mean you shouldn’t explore the opportunity further…

Just be aware of things about the property and the seller as well as any other involved parties that may be trying to tell you something that you don’t want or need.

Be wary of dodgy areas

For instance, where the property is located can pose a problem…

Now there is nothing wrong with getting a great deal on a property in a lower income area…

Some of my best property deals have been in lower income areas.

Becoming a property snob doesn’t make you much profit, I can tell you that!

But dodgy areas, where there’s too much crime, are places you want to avoid…

Those kinds of areas push away good tenants, make it difficult to rent the place, and worst of all, can be a danger to you when you collect the rent!

You also want to look around the area for any undesirable development…

Is there a factory nearby that pollutes the air or is noisy?

Are there plans for more industrial development in the area that will make the property less desirable?

These and other potential location issues need to be sorted out before you make an offer on the property.

Seller changing the terms

A seller changing the terms of the deal is another warning sign you should be very careful to follow…

When you’ve negotiated the terms of the deal and the seller has agreed to them, and then you have a deal.

But what if the seller suddenly has a change of plan or simply wants to change certain parts of the deal?

Say, for example, the seller wants to settle much earlier than agreed?

Why would he do that?

Is he afraid you’ll find out something negative about the property that you don’t already know?

Ask him for his reasons for changing the settlement date.

Chances are, you will have negotiated a proper date to close the deal that will give you the time you need to inspect the property…

So don’t accept a change in your schedule without good reason or compensation, such as a reduction of the price.

Late hour change in terms

If the seller changes the terms of the deal at the very last minute, especially if the change involves a major part of the deal, you have every right to walk away…

And probably should.

A late change in the terms can really be telling you that there are undisclosed or underreported problems with the property!

Don’t let yourself become emotionally attached to the property because it looks like such a great deal…

Sellers will often try to manage a buyer’s expectations and emotions by trying these kinds of tactics…

They figure that since you’ve come this far in the deal, you’ll be willing to close the deal, even with the changes they demand…

Don’t fall for this trick!

A too high or non-refundable deposit and lender fears

Another warning sign occurs in the beginning of the deal…

That terrific property you’ve found has only one problem…

A high and/or non-refundable deposit in the contract that is triggered if you pull out for any reason or if the sale doesn’t go through for any reason…

This is a sign that the seller is more interested in capturing your deposit that he is in selling the property…

When you see this sort of thing in the initial contract, my advice is to walk away right then and save yourself the headache of doing so later on in the process.

Another financial red flag is when lenders hesitate to lend on the property…

If one or two banks turn you down, find out exactly why…

Because if your credit worthiness isn’t the problem, then it’s likely that the property is the problem…

When lenders have had bad experiences in an area, they tend to avoid making the same mistake over and over again.

So if the lenders are walking away from the deal…

You should too.

Remember to be smart about your deals, especially your first purchases…

They ought to set up your real estate investment career nicely.

But don’t be fooled by that fantastic deal that just doesn’t feel right…

Because when it doesn’t feel right, it isn’t…

And walking away is your smartest option.