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When should you walk away from a real estate deal?

On Behalf of | May 27, 2024 | Real Estate Transactions |

Commercial real estate transactions in Arizona can be complex. While you might expect a lot of negotiation, sometimes you may feel as if the negotiations are just not going anywhere and wonder if you should walk away.

The truth is that sometimes walking away is the best choice. Even if you ultimately finalize the deal, you might be left with a bad feeling about the entire experience and wonder if the purchase was worth it.

Here are some signs that you should probably back out of a commercial real estate deal.

The numbers aren’t working

One of the biggest reasons to walk away is if the numbers do not work. No matter how much you want the property, if the mortgage is too high compared to your income, you are likely setting yourself up for failure.

Sometimes being able to make a mortgage payment depends on the current cash flow remaining the same. But any minor change to the cash flow could mean you cannot make the mortgage payments. Having enough cash flow to make payments even if the cash flow dips here and there, is a much better scenario.

A shady seller

Pay attention to your gut feelings about the seller. Unfortunately, some sellers are shady and negotiating in bad faith. You will usually see red flags and might be tempted to ignore them if you really want the property but this is a bad idea.

Do your due diligence and thoroughly investigate the seller if you have suspicions. Perhaps you are overthinking things, but perhaps you are not.

A poor location

Poor location is a third reason to bow out of a commercial real estate deal. The building may be exactly what you want but the location might not. The problem is that you can fix up a building but you cannot fix a location.

High crime, high property taxes or poor infrastructure are signs of a poor location. Unless there is some immediate action being taken to improve the area, you do not want to invest in a location that may take years or decades to improve.