7 Signs a Deal Is Too Risky (Even If It Looks Good on Paper)

Summary of 7 Signs a Deal Is Too Risky (Even If It Looks Good on Paper)

by BiggerPockets

36m•November 12, 2025
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Overview of 7 Signs a Deal Is Too Risky (Even If It Looks Good on Paper)

This Real Estate Rookie episode (BiggerPockets) explains seven red flags that can turn an apparently great deal into a disaster. Hosts Ashley (“Ash”) and Tony walk through underwriting mistakes, short‑term rental (STR) pitfalls, title/zoning surprises, and personal‑risk issues — then give practical steps to spot and avoid deals that require everything to go perfectly to succeed.

Key takeaways

  • A spreadsheet that only shows a “best case” cash flow is dangerous — always stress test best / middle / worst cases.
  • Include realistic vacancy, repair, and CapEx reserves in every analysis; don’t count on perfect occupancy or deferred problems.
  • Weak comps, title/easement issues, overstretched rehab plans, and betting on short‑term appreciation are common deal killers.
  • Match deal complexity to your skills or build a local team (GC, PM, agent) with relevant experience.
  • If the deal makes you lose sleep or requires you to stretch beyond a survivable worst case, walk away.

The 7 signs (what to look for and why they matter)

1) Deal only works if everything goes perfectly

  • Red flag: cash flow assumes zero vacancies, no repairs, no CapEx and full rent from day one.
  • Fix: build vacancy, maintenance, and CapEx reserves into underwriting (don’t treat these as optional).

2) Weak or unverified comparables (comps)

  • Red flag: using comps that differ materially by location (e.g., two blocks from water vs. on the water), school district, lot size, finishes, or relying on pending listings as sold comps.
  • Fix: verify comps against appraisals, ask agents for recent appraisals, use objective comp checklists (BiggerPockets comparables spreadsheet), and prefer sold data over pending.

3) Too much rehab for your skill level

  • Red flag: taking on structural or large‑scale rehabs that exceed your management experience.
  • Fix: either limit rehab scope to what you can manage or assemble experienced local partners: a GC, PM, or rehab‑savvy partner to oversee execution.

4) Over‑reliance on short‑term appreciation

  • Red flag: counting on near‑term market jumps to make a marginal deal profitable.
  • Fix: treat appreciation as a long‑term tailwind, not a short‑term guarantee. Ensure the property can survive (and ideally cash‑flow) without immediate appreciation.

5) High vacancy or poor tenant base

  • Red flag: properties in lower‑quality neighborhoods, with high turnover, frequent repairs, or hard‑to‑rent histories.
  • Fix: evaluate neighborhood class (retail, restaurants, schools, income levels, market rents), screen tenants, price and renovate appropriately, and understand turnover/maintenance costs. For STRs: design listing to attract the right guest avatar (and deter unwanted guests).

6) Complicated title, ownership, or zoning issues

  • Red flag: existing liens, duplicate ownership claims, unresolved code violations, deed restrictions, unexpected easements, or zoning constraints.
  • Fix: use a reputable title company, obtain title insurance, check code enforcement and municipal records, test well/septic where applicable, and validate deed restrictions or easements during due diligence.

7) Deal requires you to stretch too thin personally

  • Red flag: investing your entire life savings or being unable to cover the worst‑case scenario without severe personal consequences.
  • Fix: quantify your worst‑case exposure, keep adequate reserves, and avoid deals that would ruin your sleep or financial stability.

Short‑term rental (STR) specific pitfalls & recommendations

  • Stress‑test revenue at multiple occupancy levels (best / mid / worst); aim to break even or survive the worst case.
  • Budget realistic startup/setup costs: expect a baseline of about $30 per sq. ft. for furnishings and setup on single‑family STRs (more for amenities like hot tubs).
  • Choose comps carefully for STRs: consider location, decor/finish level, outdoor amenities, and guest demographics. Use AirDNA or similar for demand/occupancy benchmarking.
  • Design listings to attract the right guests (e.g., child‑friendly features to deter party groups); target an expected occupancy (rough guide: ~80% is healthy in many markets).

Practical due‑diligence checklist (before wiring earnest money)

  • Run best / middle / worst cash‑flow scenarios (include vacancy, maintenance, CapEx).
  • Verify comps: pull sold appraisals, use comp spreadsheet, and confirm agent/appraiser methods and radius adjustments.
  • Title search and title insurance.
  • Physical inspections and specialized checks: HVAC, roof, plumbing, electrical, pest, wells/septic where applicable.
  • Code & zoning review: talk to code enforcement and planning department; verify permits for additions or RV pads, etc.
  • Confirm school district and other local market influencers.
  • Get several bids/quotes for rehab; vet GC references and PM experience.
  • Calculate reserves and exit strategies; confirm acceptable stress/shortfall levels.
  • Review deed restrictions, easements, and parcel history.

Underwriting & stress‑testing quick checklist

  • Always model three scenarios: best / middle / worst.
  • Include:
    • Vacancy reserve (% appropriate to market/asset)
    • Repairs & maintenance (annual $/unit or % of income)
    • CapEx reserve (roof, HVAC replacement timing & costs)
    • Closing & setup costs (STR setup $/sqft baseline)
  • For flips: underwrite at a conservative listing price (sometimes a touch under comps) to ensure quick sale if the market softens.

Notable insights / quotes (paraphrased)

  • “Don’t bank on appreciation in the short term — make the deal work for the present.”
  • “If your worst‑case scenario is a meaningful loss you can’t fund, it’s not the right deal for you.”
  • “A deal that requires everything to go perfectly is a deal that’s too tight.”

Resources & tools mentioned

  • BiggerPockets calculator and comparables spreadsheet (biggerpockets.com/resources) — for underwriting and comp checks.
  • Appraisals and agent‑provided appraisal samples — to learn how comps are selected.
  • Title companies and title insurance — protect against ownership claims.
  • AirDNA and STR analytics — for occupancy and demand benchmarking.
  • Local code enforcement / planning department — to validate permits, violations, and zoning.

Action items you can use now

  1. Revisit your most recent deal and run a 3‑scenario stress test (best/mid/worst).
  2. Rebuild your pro forma to include vacancy, repairs, and CapEx reserves.
  3. Request recent appraisals from your agent and compare how comps were chosen.
  4. Add a title search and code enforcement check to your standard due‑diligence checklist.
  5. If doing STRs, add a startup budget line (≥ $30/sqft) and define your ideal guest avatar.

This episode’s core message: spreadsheets can lie if you omit realistic reserves, poor comps, legal/title problems, or personal capacity. Use conservative underwriting, verify everything, and don’t let a tempting “on‑paper” return trump real risk.