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

Summary

Podcast Summary
Podcast: Real Estate Rookie
Episode: 7 Signs a Deal Is Too Risky (Even If It Looks Good on Paper)
Hosts: Ashley Kehr & Tony J Robinson (BiggerPockets)
Date: November 12, 2025

---

Episode Overview

In this episode, Ashley Kehr and Tony J Robinson break down the seven major warning signs that signal a real estate deal might be too risky, especially for rookie investors. They blend personal stories, practical examples, and hard-won lessons in a friendly, approachable tone. The goal is to help new and aspiring investors avoid dangerous pitfalls—even when the spreadsheet “looks amazing”—by recognizing hidden risks before they become costly mistakes.

---

Key Discussion Points & Insights

---

1. Unrealistic Optimism in Projections (00:40)

• Ashley: Warns against “deals that only work if everything goes perfectly.”
  • Many rookies just subtract their fixed expenses and assume the rest is cash flow, ignoring vacancies, repairs, and capital improvements.
  • Quote:
    • “Your deal only works when everything goes perfectly... you’re never going to have any of that and it’s really, really slim.” (00:40)
• Tony: Stresses the importance of “stress testing” at multiple scenarios.
  • Best, middle, and worst-case projections should be considered.
  • Quote:
    • “If I’m breaking even on my worst-case scenario, I can probably live with that... but if I’m losing 10, 12, $30,000 a year in my worst case scenario, then maybe this isn’t a deal I want to do.” (02:14)
• Short-Term Rentals:
  • Rookies often underestimate setup costs (suggests budgeting "$30 per square foot at minimum" for Airbnb setup, not counting major amenities.)
  • Picking bad comps due to location or amenities differences is common.

---

2. Weak or Unverified Comparables (05:24)

• Ashley: Shares a story about an investor using comps from a different school district, sinking his listing value.
  • Points out the lag in closing times (e.g., New York: 45-90+ days), meaning recent sales data can mislead.
  • Suggests using pending listings not for price but for indicators like days on market and types of homes moving.
  • Recommends using BiggerPockets' comparables tool and studying actual appraisals for more accurate comp selection.
• Tony: Emphasizes every market is different—rural versus urban, size of radii used for comps, premium features, different appraiser adjustments.
  • “The wrong comps can derail your deal, right? Like if you don’t have the right comps, everything else starts to fall apart.” (09:15)

---

3. Overreaching on Rehab (13:20)

• Ashley: Warns against taking on renovations beyond your skills or experience.
  • Her own early rehabs were strictly cosmetic for this reason.
  • Quote: “Really think about what your skill level is and your experience.”
• Tony: Confidence came from his operations management background, but more critically from “building a team that had the experience I was lacking.”
  • Recommends for rookies to leverage skilled contractors, property managers, or experienced partners if stepping outside your comfort zone.
  • “If you want to take on a rehab that maybe is outside of your normal skill set... how can you go align yourself, either through contractors, PMs, even partners who do have those skill sets that can bridge that gap for you?” (15:26)

---

4. Banking on Appreciation (15:51)

• Ashley: Shares a COVID-era flip that was a home run, but warns it was mostly luck and that investors should never bank on short-term appreciation.
  • “Your deal should make sense for now... Don’t bank on uncertainties, bank on what you can actually analyze and know right now.” (16:40)
• Tony: Echoes caution; compares it to stock market investing; encourages sticking to long-term appreciation plays, and only accepting negative cash flow if you can truly afford to.
  • For flippers, now is a time to underwrite conservatively, even assuming flat or dropping prices, citing advice from other experienced flippers.
  • Quote: “Don’t buy a deal that’s not cash flowing, right, that you’re losing money on, unless you’re willing to accept and you can fund that negative cash flow.” (19:40)

---

5. High Vacancy or Poor Tenant Base (21:26)

• Ashley: Describes the trap of “cash cow on paper” properties in rough neighborhoods.
  • Low prices, seemingly strong cash flow, but actually a magnet for tenant and maintenance headaches due to poor neighborhood quality, high turnover, or subpar infrastructure.
  • Quote: “Sometimes there are reasons for that to happen that don’t show up in deal analysis.” (21:40)
• Tony: For short-term rentals, stresses matching property features to the "right guest avatar" (e.g., family vs. party crowd), sharing tactics like design choices that attract or repel certain guests.
  • Quote: “How can you set up your listing to make sure you’re attracting the right person—and then repelling maybe the wrong person?” (25:35)
• Ashley: Explains how to use indicators like retail and restaurant quality, school districts, local incomes, and market rents to distinguish between A/B/C/D class neighborhoods.

---

6. Complicated Title, Ownership, or Zoning Issues (34:27)

• Tony: Details the importance of using a title company and getting title insurance to guard against post-sale ownership claims.
  • Shares a story of an investor (Derek Acuff) who faced a claim after purchase due to title issues.
  • Quote: “Make sure you go through a title company, and then… make sure you get title insurance.” (34:55)
• Ashley: Cautions to always perform thorough due diligence.
  • Personal example: nearly bought a campground with code violations and non-permitted RV pads.
  • Suggests always speaking to code enforcement, checking for all outstanding fines or restrictions, and learning the ins-and-outs of local rules.
  • Touches on risks like hidden deed restrictions and utility easements that can cripple a property’s value or flexibility.
  • Memorable Moment:
    • “By the saving grace, the code enforcement officer called me... and he went through all of these violations. Everything that wasn’t up to code... The concrete pads had been poured, they would have been ripped up.” (35:38)

---

7. Stretching Yourself Too Thin (40:03)

• Ashley: The final sign—a deal that requires you to overextend financially, emotionally, or operationally.
  • “If you don’t have a lot to fall back on and you’re literally taking your life savings and putting them into this one property... and if it goes bad, what’s your worst-case scenario?”
  • She admits she has stretched herself too thin before and lost sleep over it—now is more risk-averse, especially as a rookie.
  • Quote: “It is a stressful feeling. It is not a good feeling. So now I’m very risk adverse and I do not stretch myself too thin because I don’t want to lose everything.” (40:03)

---

Memorable Moments & Notable Quotes

• Ashley (00:40): “Your deal only works when everything goes perfectly… the chances of that happening are really, really slim.”
• Tony (02:14): “If I’m breaking even on my worst case scenario, I can probably live with that.”
• Ashley (05:24): “Don’t go off a pending listing because that’s not sold… but I’m looking at days on market.”
• Tony (09:15): “The wrong comps can derail your deal... everything else starts to fall apart.”
• Ashley (16:40): “Don’t bank on uncertainties, bank on what you can actually analyze and know right now.”
• Tony (19:40): “Don’t buy a deal that’s not cash flowing… unless you’re willing to accept and you can fund that negative cash flow.”
• Ashley (21:40): “Sometimes there are reasons for that to happen that don’t show up in your deal analysis.”
• Tony (25:35): “How can you set up your listing to make sure you’re attracting the right person—and then repelling maybe the wrong person?”
• Ashley (35:38): (On code enforcement saving her from a disaster) “He went through all of these violations. Everything that wasn’t up to code... The concrete pads had been poured, they would have been ripped up.”
• Ashley (40:03): “Now I’m very risk adverse and I do not stretch myself too thin because I don’t want to lose everything.”

---

Timestamps for Major Segments

| Segment | Timestamp | |------------------------------------------------------------|------------| | 1. Unrealistic Optimism in Projections | 00:40–05:24| | 2. Weak / Unverified Comparables | 05:24–09:38| | 3. Rehab Overreach | 13:20–15:51| | 4. Banking on Appreciation | 15:51–21:26| | 5. Vacancy or Poor Tenant Base | 21:26–29:45| | 6. Title / Ownership / Zoning Issues | 34:27–40:02| | 7. Stretching Yourself Too Thin | 40:03–41:05|

---

Takeaways for New Investors

• Don’t get seduced by spreadsheets alone—stress test every deal.
• Use accurate and current comps that match your property’s characteristics.
• Know your experience limits and fill gaps with a strong team.
• Never assume appreciation; buy for what works now, not “maybe later.”
• Beware of properties with great numbers in risky locations or with high turnover tenants.
• Always use a title company, get title insurance, and dig into due diligence.
• Never risk more than you’re willing (and able) to lose, both financially and emotionally.

---

Hosts’ Tone:
Warm, relatable, and educational. Both Ashley and Tony share real-life rookie mistakes and stories, making expert advice easy to understand and actionable for beginners.

---

This summary is designed for new and aspiring real estate investors who want to make smart, risk-conscious decisions in their first few deals. For a deeper dive into any of these topics, check out the full episode!

Transcript

[Ashley]

Today's episode is all about those deals that look amazing on paper. The ones that make you think, this is it. This is my breakthrough deal. But actually they may have some risk hiding underneath them.

[Tony]

Yeah, and we've both had moments where a deal checked every box on the spreadsheets.

[Podcast Host / Announcer]

But once we dug a little bit.

[Tony]

Deeper, we realized it could have been a disaster.

[Ashley]

So if you're analyzing deals and wondering, how do I know when to walk away? We're going to break down the red flags that should make you pause and rethink the deal.

[Tony]

Whether it's your first property or your fifth, these are the traps you need to watch out for before wiring your earnest money.

[Ashley]

So your deal only works when everything goes perfectly or you don't go over your contingencies. So there's no vacancies, no repairs, full rent from day one. That's a sign that it might be too tight because the chances of that happening on a deal that you're never going to have have any of that and is really, really slim. So the first thing you need to make sure is that you're not accounting cash flow as just your income minus your fixed expenses, such as the mortgage payment, the insurance, the property taxes, you know, things that you're going to be paying every month, any utilities. You want to make sure that you are accounting for the vacancies, the repairs and maintenance, and the capital improvements on the property. And that is a big mistake where you're looking at the bigger pockets calculator report and you're saying, you know what, I probably won't have, you know, repairs or I don't need to save for cap acts because just if something happens down the road, the roof is newer, I probably won't have to replace it for five years. I can just, you know, pull together a chunk of money that I've saved up and buy the roof then. But that is not giving you an accurate account of if this deal will work or not for you and if it's actually a good deal. Tony, what are some things on the short term rental side that maybe you see as like, red flags that people are missing and not accounting for? That's like not giving them that the accurate look of a deal.

[Tony]

Yeah, three things. First is not stress testing at different income levels. So it's like, it's fine if you want to project your best case scenario, but let that be your best case scenario, not your only case scenario. So for me, when we underwrite a deal, we're looking at a best case scenario, a middle case, scenario and then a worst case scenario. And we want to stress test at all three of those levels. And if I'm breaking even on my worst case scenario, I can probably live with that, right? But if I'm losing 10, 12, $30,000 a year in my worst case scenario, then maybe this isn't a deal that I want to do. So I think that's first is, and this is true for short term, long term flipping, whatever it may be, I think it's good to stress test at multiple levels right now, specifically to the short term rental space. The second piece, Ash, would be not accounting for the actual setup of the Airbnb. I see a lot of folks who mistakenly believe that their biggest expense is their down payment and their closing costs. And while it may be oftentimes setting up your Airbnb can maybe be just as much as your acquisition costs, if not more, depending on the size, the scope and how much you put down. But where people get into trouble is they buy an Airbnb, especially when it's an existing Airbnb return key. Airbnb. Chances are even if you're buying someone else's Airbnb, there's still a lot of work and improvement that needs to go into it. So what we typically tell folks is that if you're buying a single family short term rental, you should expect to budget at least, at least $30 per square foot to set up your Airbnb at minimum. And then even more when you start talking about like outside amenities and things like that, you know, saunas, hot tubs and all those things. Just like your core furnishing designs, maybe some murals, things like that. $30 per square foot. So stress testing at different levels, making sure on the short term rental side specifically that you're budgeting for your startup and then the third piece. And again, this is true for all asset classes, all strategies, but it's making sure that you're choosing the right comps. I see it so often. You know, I'll give you an example of like a, like a beach market. Say that someone wants to buy in a beach market and they've got a really beautiful home, but it's two blocks back from the water. And they're like, well, hey, my house is really, really nice. It's actually nicer than this property. But then you look at the other property and it's, you know, literally sitting on, on the ocean. It doesn't matter how nice your property is, it's two blocks back. No one's going to pay the same for those Two properties because being on the water is a premium. Same thing if, if you're, you know, if you're flipping a home and you could have the exact same square footage, even the exact same layout, but if you've got, you know, plain white Shaker cabinets and they've got super luxury cabinets that go from the bottom all the way up to the ceilings, people are going to pay more for that product. So it's really making sure that as you're doing your research, the comparable properties you're using are similar to yours in terms of size, location, construction, quality, layout, amenities. If it's short term rental. So those are the kind of three big buckets that I see people making mistakes on when they're trying to underwrite their numbers.

[Ashley]

Yeah. And that really leads us into sign number two is to the weak or unverified comps. And this goes any strategy as to, you know, when you're looking at comparable properties, how are you defining similar so that it's a similar property? So I had an investor friend who bought this property, got a great deal on it and he's like, it's in a great neighborhood, great market. It ended up being, and he didn't even realize this till the house was listed, that it ended up being in a different square school district. It was like right on the borderline than all the other houses in that neighborhood. And it killed his listing. Like that was the main thing from every buyer was like a big house with lots of bedrooms, so built for a family. And that was his, his buyer was a family. And it, they nobody wanted it because it was not in the school district. So making sure when you're looking at comparables, you're looking at all the data of the property. Another thing that I see a mistake, especially in markets like mine where it can take 45 to 90, sometimes even longer to close on a property in New York State is when that property shows what it's sold for. That property could have been offered on three months ago. So that means that that comp is three months old. That's what people were willing to pay three months ago. So that makes it more challenging to really get an accurate picture of what your comps should be. So James Zainard has always like taught me, don't, you know, go pending, like don't go off a pending listing because that's not sold. So that doesn't mean it's what it's going to sell for. But because I'm in such a long period of waiting to close, I am looking at what's going pending? So not necessarily for price because I don't know what the pending price is. It could be way lower, it could be higher, but, but I'm looking at days on market. So did it go pending right away then? It's probably usually close to the purchase price or above if the person accepted the offer right away. But I'm looking more at what types of houses are selling. So is it luxury, high end homes? Is it starter homes? Is it fix and flip homes? So I'm really looking at that when comparing comps. But also we also have a tool. If you go to biggerpockets.com resources, it's a comparables property and you plug in your properties and it tells you each thing that you should be looking at. So it's just a spreadsheet you can fill out and use and it'll say like, okay, what's the square footage? And I built this based off of looking at appraisals because comparables will matter for appraisals if you're refinancing or the comps will matter to see what prices are properties are selling for if you're going to resell the property. So it just gives you a list of things to look at and making sure that you're taking into consideration.

[Tony]

Yeah, couldn't agree more, Ash, on the recommendation to review the appraisals. Because every market is going to be a little bit different. Like, you know, Ash, you're in a more rural area. You know, we have properties in Joshua Tree near the national park where just a lot sizes seem to be a little bit bigger out there. But then like where I live, you know, I'm in like a newer subdivision that was built in 2018, like within a quarter mile radius there's going to be a lot of homes in that, in that area. So every market is going to operate a little bit differently when it comes to how those comps are chosen. And the best way is just to go ask your agent, say, hey, can you send me some old appraisals that you've seen or recent appraisals that you've seen and then that'll tell you how far out are they going from the subject property? Are they keeping it within half a mile or are they going out five miles? How much are they adding or subtracting for variations in bedroom count or lot size or square footage? And as you start to piece those things together, you start to get a better sense of, okay, here's what my comparable property should look like. And I think that gives you a lot more confidence as you choose the right comps. Because the wrong comps can derail your deal, right? Like if you don't have the right comps, everything else starts to fall apart.

[Advertiser / Sponsor Voice]

Want to invest in real estate but don't have the time or know the best local markets? Rent to Retirement has got you covered. Here's the deal. They've helped thousands of investors just like you find turnkey homes across the best US Markets. And best of all, they do all the heavy lifting for you. With over 255 star ratings on BiggerPockets, rent to retirement experts help you build strategies to retire early through real estate. And right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties. Just for example, you can get up to 30% off new build prices or you can get 0% down loan options or interest rates available as low as 3.99%. So don't miss out. Deals will not last. Text REI to 33777 or visit biggerpockets.com retirement to start investing in top cash flow markets today. I'm usually the guy who thinks smart technology just means expensive way to complicate simple things. But then Simplisafe showed me security cameras that actually yell at burglars for me and suddenly I'm living in the future I didn't know I wanted. Here's what I personally love about SimpliSafe. Traditional security systems wait until someone's already broken in to alert you. But Simplisafe's Active Guard outdoor protection actually stops crimes before they start. I also like that their AI powered cameras detect threats while intruders are still outside your home and alert live security agents. Those agents then confront the person through the camera, telling them they're being watched, that police are on the way, and they can even sound sirens and trigger spotlights. I truly trust Simplisafe to not only protect my home, but also my wallet. There are no long term contracts and no hidden fees and they've been named best home security system by U.S. news and World Report five years running. Plus there's a 60 day money back guarantee. Right now you get exclusive early access to the biggest Black Friday sale of the year. That's 60% off for any new system. This is their best deal ever. So if you've been thinking about real security for your home, now's the time. Go to simplisafe.com pockets that's simplisafe.com pockets.

[Podcast Host / Announcer]

Want to invest in real estate but don't have the time or know the best local markets. Rent to Retirement has you covered. Look, here's the deal. They've helped thousands of investors just like you find turnkey homes across the best US Markets. And best of all, they do all the heavy lifting for you. With over 250 five star reviews on BiggerPockets, rent to retirement experts help you build strategies to retire early through real estate. And right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties. Like up to $30,000 off of new build prices, 0% down loan options, 3.99% interest rates. So guys don't miss out. These deals won't last. Text REI to 33777 or visit biggerpockets do/retirement. Start investing in top cash flow markets today.

[Advertiser / Sponsor Voice]

Today's show is sponsored by Baselane. They say real estate investing is passive, but let's get real. Chasing rents, drowning in receipts and getting buried in spreadsheets feels anything but passive. If you're tired of losing valuable hours on financial busy work, I've found a solution that will transform your business. It's Baselane, A trusted BP Pro partner. Baselane is an all in one platform that can help you automate the day to day. It automates your rent collection and uses AI powered bookkeeping to auto tag transactions for instant cash flow visibility and reporting. Plus they have tons of other features like recurring payments, multi user access and free wires. To save you more time and money, spend less managing your money and more time growing your portfolio. Ready to automate the busy work and get back to investing? Baseline is giving BiggerPockets listeners an exclusive 100 bonus when you sign [e-mail] BiggerPockets okay, welcome back.

[Ashley]

So sign number three is too much rehab for your skill level. So Tony was way more adventurous in his first rehab than I was. But I had very cosmetic rehab starting off. So a little paint, a little vinyl plank flooring, things like that. Nothing extensive. No ripping out walls, no pulling out bathtubs, things like that. And that was where I was comfortable and I did that for a very long time. So really think about what your skill, skill level is in your experience. So in Tony's example, you know, he didn't fly out to Louisiana and do any of the work or even oversee it. He built a team out there. But that still means you have to have the capabilities to oversee that project and understand that other things could come up in that scenario. Tony, if somebody wants to do a larger rehab, what are the key elements they need to make sure they have in place before they take that leap into a bigger rehab.

[Tony]

Yeah, I mean, I think a lot of us have skills just in our everyday lives that oftentimes translate into real estate investing. And I think part of the reason that I was comfortable taking on a project like that was because my. My day job, my entire responsibility was managing operations and making sure people were on time and on budget and doing those different things. So for me, it was. It was a natural kind of progression. So if in your day job, you kind of have some of those skills, even if you haven't necessarily applied them to rehabbing, maybe there's still some overlap that you can focus on. But to Ashley's point, I do think what really gave me the confidence, actually was that I was able to build a team that had the experience that I was lacking. I had a general contractor who came highly recommended that did a lot of work for investors specifically in that market. Like those who were his primary clients was working with investors. So he was someone that knew what we wanted and how we like to operate. I had a property manager who's helped me oversee the construction as well, because they were like, hey, well, hey, we know what we want this property look like to get it rented well. So here's some of the things that we need. So I was really able to tap into the, the. The knowledge and the skill set of the people who are in that market to help give me the confidence to do it myself. So if you are a rookie and you do want to take on a rehab that maybe is outside of your normal skill set, it's not necessarily that you can't do it, but how can you go align yourself either through contractors, you know, PMs, even partners do, who. Who do have those skill sets that can bridge that gap for you.

[Ashley]

Okay. And sign number four over reliance on market appreciation. Tony and I actually just recorded with Thatch, Gwen and James Danard. And this is one of the topics that we talked about is banking on appreciation, especially in the short. A short period of time where maybe if you bought during COVID March 2020 of COVID I was lucky enough to buy a foreclosure home at that time for like two $29,000. And, you know, I put not a lot of money into it. And, you know, a year and a half later in 2021, it sold for $170,000. So, like, yeah, that was a great appreciation in that time period. But should I have run my numbers off of that and banked on that? No, because you cannot time the market. So Your deal should make sense for now. So if you think like, oh, in three years this is going to appreciate, even in 10 years this is going to appreciate, yes, it probably will. If you look over the last 30, 40 years the housing market prices has increased. You ask your grandparents and what they originally bought their house for. It is very, very different than what a house that same type would be selling for right now. But you want to be able to, to have your property sustain that period of time that it actually takes for appreciation to happen. So I have one property that I bought for appreciation. It cash flows very, very little. I have reserves in place and I also have the means to cover any huge capital improvements or cover any vacancies from my reserves and from other income streams. And if in fact that property doesn't perform and I have to wait longer and longer before I actually sell it. So really don't bank on uncertainties, bank on what you can actually analyze and know right now. So if it is a rental, you know for sure you can rent it out at this based on market conditions and you are going to get X amount of cash flow per month. Like you can run the numbers on this deal and yes it may change, you know, your insurance may go up, things like that, but it, you're at least not, you know, guessing on what the appreciation is going to be on the property and what its value is going to be five years from now if you decide to sell it for flipping a property. Tony, what is the best way to run the numbers to not be banking on, oh, it's going to take me six months. I feel like the market is going to go up a little bit and I'll make even more money.

[Tony]

I'll touch on the flipping but just I want to circle back because you made a really important point but I just want to clarify like what Ash is saying about not over relying on appreciation. We're not saying that you can't buy for appreciation because it's just like the stock market. If I buy a share in Apple today and I bank on being able to sell it a week from now because stock prices always go up, there's a lot more risk in this seven day period of whether or not it's actually going to go up or go down. But if I buy Apple today and I assume over the next 30 years that there's a reasonable chance that it will have gone up in value, I think that's a much safer bet. And it's the same thing for real estate investing. If you want to buy for Appreciation, that's fine, but make it a long term appreciation play. Don't make an appreciation for next week or a year from now or two years from now, because who knows what the market can do in a short period of time. But over the history of the real estate market, things have generally appreciated above and beyond inflation. So it's reasonable to say that if you buy a property in at least a somewhat stable market 30 years from now, you will have gained a decent amount of appreciation. So I think that's what it is. And then more importantly, don't buy a deal that that's like not cash flowing, right, that you're losing money on. Unless to Ashley's point, you're willing to accept and you can fund that negative cash flow. Now, whether or not you want to do that, it's a personal choice. If you just really like the house and you like the city and you like all these other things, you're like, I can fund the, you know, 300 bucks a month because I'm a physician or I'm, you know, a CEO or executive somewhere, then great, or you're just.

[Ashley]

Really great with your money and live way below your means or that, right?

[Tony]

You know, you just got a lot of extra income that you're, you can, you can put towards that. But I think the point is don't over, over rely on it. Now, going back to your point, Ash, about flipping, I think that depending on when you started flipping, this probably influences how you feel or what your business plan looks like. Because for a lot of people that started flipping during things getting super hot, you could buy a bad deal and the market going up would save you. But now with the market being more flat and in some markets maybe even being down, you've got to almost bank on the opposite of appreciation, right? You've got to bank that maybe I'm buying this today. And what the comp say today is one number, but six months from now it could be maybe something even lower. And we recently interviewed Dominique Gunderson and Henry Washington, two flippers in different parts of the country, and they both echoed the same thought on this where they said that if the comps say that I could probably sell this for, you know, 300, I'm going to listed 295. I'm going to underwrite this deal to 95 because I want to make sure that it moves. And I think that's the step that we probably need to make in a, in a market like today where things are shifting and the short term appreciation is definitely not Guaranteed.

[Ashley]

Okay, so we're going to move on to sign number five. And that is high vacancy or poor tenant base. And this is something I learned along the way. I was like, wow, this is awesome. I can buy a duplex between 20,000 to $70,000. And that was the majority of my portfolio. Some of those turned out great, some I still have. But some of those $20,000 properties, I realized why they were $20,000 and it was just headache after headache. So a property can have great cash flow on paper. You can get it for a low price, you can charge a good amount of rent and your mortgage payment is low because you, you bought it right. And this looks great, it's a cash cow. But sometimes there are reasons for that to happen that don't show up in the deal analysis. So the first thing can be the location, the neighborhood, the market that it's in. So it could just be that this is a D, a C class neighborhood. So what you can run into in those neighborhoods is first of all, more crime in the neighborhood. Second of all, you can run into a lower quality tenant who maybe isn't taking care of your property or making late payments or just ends up not paying at all. And all of those combined can kind of give you headaches. It also could be that the property is just in this area and I bought into an area like this where no properties are really completely renovated and nice. At least the rentals it is a smaller town. There's a lot of drug use going on in this area. And a big part of this town is that the rentals are just plain Jane. But there's also a lot of lipstick slapped on a pig. And I bought one of those for 37000 where I was like, oh yeah, this is actually like not that bad inside. It's like nice. It's like very decent for the neighborhood. But it was issues with the plumbing, issues with. It was just diy, DIY right after each other. For all the owners that had it. Nobody ever actually replaced anything. It was just like fix after fix. So I had headaches with the tenants and constant turnover. That's another thing that you can see sometimes in the lower class neighborhoods like C and D is the lower is more turnover in your properties and just the maintenance, the constant maintenance that was needed on these properties. And unless you could go in and do a full gut rehab and transform the whole property and make it all brand new again, you can eliminate that. But then you're probably not going to be able to increase the rent to what you would need if you completely renovated the property. So there's like that give and take there. But that was my experience and I ended up selling those properties. Luckily I bought them 2018, 2017, 2019, and I was able to offload them for triple, you know, price in 2021, 2022. But you know, you're, that was just so lucky. That was not any kind of, you know, planning or anything like that. So I think really not only looking at the numbers on paper, but also looking to, you know, what kind of neighborhood you're buying in, what quality of tenant and what headaches and what time is you going to have to put into this deal. Tony, what about the short term rental side of things?

[Tony]

Yeah, I think it's, it's, I think maybe a little bit different because you know, no, no property is fully booked all the time. Like there's always, you know, like you don't want to be, you know, like a good occupancy is probably somewhere around like 80%. So I think it's a slightly different mindset. But I, I think the notion of attracting the right kind of guests is probably what's more important here. For, for example, if I have a four bedroom property in Vegas, that's a very different demographic of guests than having a four, four bedroom property in, I don't know, Orlando. Yeah, Orlando, right. A lot more maybe partying and raging going on in Vegas and maybe a lot more families going to Orlando. So I think it's just making sure that as you put your property together that you've got a good understanding of the avatar of guests that's coming to your listing and then making sure that you're either trying to attract the right person or deter like we just had Jamie Lane from airdna on and he said that he specifically put like a jungle gym in his backyard because he wanted to deter like bachelorette parties, you know. So it's like how can you set up your listing to make sure that you're attracting the right person and then repelling maybe the wrong person. But I think one follow up question for you, Ash, is we talk a lot about neighborhoods being a class B, class C, class D class and obviously it's part art, part science. But what are you looking at to gauge when we move from one class to the next? Is it just crime rate or is it some combination of other things as well?

[Ashley]

Yeah, so it's also like retail restaurants. So what type of retail restaurants are in the area? So like there's like the dollar general rule of Thumb is like, you know, they, if you are not close to like a Target or a Walmart, like Dollar General wants to be there if you're not within so many minutes of one or whatever. So like, that's definitely like a more rural. And then, you know, as you get closer to a Target, it may be, you know, a nicer area depending. But I think looking at like just driving the streets, first of all, I think is so important. Or go walking on Google Maps, your little yellow guy. But like looking what types of restaurants are in the area? Like, are they nicer quality restaurants? Are they a lot of, you know, just like dine and dash places, like little diners, things like that. So I, I don't mean dine and dash like people are going in and eating and leaving. I mean you get quick service and it's cheap. But, but I, I look at that a lot. The re, the retail and the restaurants that are in the area. But then you're also looking at the school district, so what's the school rating on it? And then also if you're local, you'll can probably, you know, get other people's opinions on what's actually the good school district around here that people want to be in and then also the income in that area too. So is it a higher income, so. Or is it lower income and then just market rents? If you compare market rents for two different neighborhoods, you can kind of gauge like, okay, this two bed, one bath is getting $1,000 in this market. It's getting 800 in this one, and it's getting, you know, 650 in this one. Then that kind of ranges like that's my A, B and C too. So just comparing to other neighborhoods I think helps a lot. That's in the surrounding area. And then you can kind of stack them as to like, this one has the best stuff, the next, next, next.

[Tony]

I love that breakdown, right? We're looking at a few different data points to help make that decision. But I also just love the fact that you admitted to committing a crime on, on the podcast here. I've actually, I've dined and dashed once in my life actually. And I was in my young 20s and we're actually in Las Vegas and only because it was like the absolute, like she literally just did not come back and we were just sitting there waiting for her and we're like, all right, should we just leave? You know, we've been waiting forever and then we just left. So. Waitress in Vegas. You know, I'm sorry, I, you know.

[Ashley]

What I I wish that BP got a couple weeks ago that they would have like had your facial recognition like saved all these years and come after you as to take you down on stage. You died to dash the log. The casino camera caught you. I, I tried to think like I don't think that I ever have done that. But if I remember I'll, I'll come clean on the podcast if I, if I have.

[Tony]

All right guys, we're going to take a quick break before our last two signs here. We'll be right back with more after this.

[Advertiser / Sponsor Voice]

Do you want to invest in cash flowing rentals but don't have the time to manage the properties? Is your local market too competitive or expensive to invest in? Rent to Retirement offers new construction turnkey investment properties that you can buy with as little as 5% down and rates as low as 3.99%. Their team handles everything from financing, management, insurance and more so you can live where you want and invest in the markets that offer the best returns. Rent to Retirement has the best reputation in the industry with more five star reviews than any other company on the BiggerPockets website. To learn more, visit biggerpockets.com retirement or just text REI 233777 to start investing in the best markets today. I'm usually the guy who thinks smart technology just means expensive way to complicate simple things. But then Simplisafe showed me security cameras that actually yell at burglars for me and suddenly I'm living in the future I didn't know I wanted. Here's what I personally love about Simplisafe. Traditional security systems wait until someone's already broken in to alert you. But Simplisafe's Active Guard Outdoor protection actually stops crimes before they start. I also like that their AI powered cameras detect threats while intruders are still outside your home and alert live security agents. Those agents then confront the person through the camera telling them they're being watched, that police are on the way, and they can even sound sirens and trigger spotlights. I truly trust Simplisafe to not only protect my home, but also my wallet. There are no long term contracts and no hidden in fees and they've been named best home security system by U.S. news and World Report five years running. Plus there's a 60 day money back guarantee. Right now you get exclusive early access to the biggest Black Friday sale of the year. That's 60% off for any new system. This is their best deal ever. So if you've been thinking about real security for your home, now's the time. Go to simplisafe.com pockets that's simplisafe.com pockets.

[Podcast Host / Announcer]

Are current interest rates making you depressed about cash flow? What if it didn't have to be that way? Rent TO retirement has 2.99% seller financing available on turnkey properties. You heard that right, That's a seller financed 2.99% interest rate where the average cash flow is over $900 per month. They also have options where you can put as low as 5% down on multiple investment properties with no PMI. Rent to retirement is the nation's leading turnkey investment company that understands what it takes to be successful in today's dynamic real estate market. Their reputation speaks for itself, with more 5 star reviews than any other company on the BiggerPockets website. Rent it to Retirement offers fully turnkey properties that are newly built or renovated, leased and managed, allowing you to invest with confidence in the markets that offer the best returns. To learn more, Visit rentt to retirement.com that's rent t o retirement.com or text REI to 33777 Again, text REI to 33777 Remember those dreams where you show.

[Advertiser / Sponsor Voice]

Up to school and realize you forgot to wear pants? My first Black Friday was like that, except instead of pants, I forgot to make sure my payment system could handle more than two transactions at once. And instead of waking up relieved, I woke up to 47 angry customer emails. Whether you're an established business or bracing yourself for your first Black Friday this year, you need a platform that won't abandon you when things get crazy. Shopify powers millions of businesses and 10% of all US E commerce for a reason. There are thousands of templates streamline website creation so your site looks good and works flawlessly. AI tools, write product descriptions and enhance photography to increase your reach. Shopify's marketing tools push your brand through the holiday noise. Shop pays expedited checkout, reduces abandoned carts and boosts conversions. Plus, their 247 support team has your back when you need it most this Black Friday. Join thousands of new entrepreneurs hearing that for the first time with Shopify. Sign up for your first free trial [e-mail] BProokie that's shopify.com BProokie go to shopify.com BProokIe and make this black Friday one to remember.

This episode is brought to you by White Claw Surge. Great podcast pick friend. No surprises there. After all, you're all about finding the tastiest flavors out there. Just like White Claw Surge and with big, bold flavors to enjoy, like blood orange, BlackBerry, cranberry and more. It's time to go all in on taste. Unleash the flavor. Unleash. White Claw Surge. Please drink responsibly. Hard seltzer with flavors. 8% alcohol by volume. White cloth seltzer works Chicago, Illinois.

[Tony]

All right, so let's get into sign number six, which is complicated. Title ownership or zoning issues. There's a lot that goes into this. Now, this is why whenever you transact on a piece of real estate, you want to make sure that you're using a title company. Because their entire purpose is to make sure that the property doesn't have any sort of title issues or liens or that anyone else could take claim to this property once you own it. And Ash and I, we actually both know an investor. His name is Derek Acuff. He's been a guest on the podcast before, but he actually bought a property and after buying it, found out that there was a title issue. Someone else had a claim to ownership on this property that he had just purchased legally, and it turned into this whole ordeal. So whenever you transact on something, A, make sure you go through a title company and then B, make sure you get title insurance. Because if there ever is an issue down the road, it's the title insurance that will cover you to make sure that everything gets resolved without you having to spend a whole bunch of money on whatever it costs to get that done.

[Ashley]

Yeah, and I think just asking questions if there's anything you are unclear about. So I was going to make this big mistake and I was going to buy this campground that I had no business doing. But I'm like, I need to grow on scale. I need to do something big. This is it. And I was in my due diligence period. I had put my hundred thousand dollar earnest money deposit. I had 30 days to do my due diligence. And by the saving grace, the code enforcement officer called me and said, I have been trying to track you down. I heard somebody got it under contract. You need to know all of this. And he went through all of these violations. Everything that wasn't up to code, they had put in like, I think it was like 20 new RV pads. They looked great and everything. And he's like, they're not up to code. They never even got a permit when they were put in. So most likely they're gonna. All the electric, all of the plumbing that was put into these RV sites is going to have to be dug up, checked, and then put back together. The concrete pads had been poured, they would have been ripped up. So that was like, look, you need to really understand all of the mechanics, but also talk to the code enforcement officer, talk to the town, make sure there's not anything outside outstanding. I bought a house once that we missed during due diligence where it had. The person who owned the house had passed away and the estate was selling it. And there was actually like $125 fine, you know, associated with the house for them not cutting the grass while it was under contract or something. Like, could have been way worse. Like, so you got to watch out for that. But I think really making sure that you're doing your due diligence and especially now since, you know, we are going kind of into a buyer's market here where there's more flexibility. Things are sitting, you know, on market longer, you can negotiate more is to making sure that you're putting in some time to do your due diligence. So putting your offer in and then making sure you're getting all this done. And like, another big one that you should be doing too. And like in my county, they used to only require it if you were getting a bank mortgage because the bank wanted this done. But now you have to for every closing, but get the well and the septic tested. So because like, those could. That could be 50 to 60 thousand dollars if you have to replace both of those. So really getting an understanding of the mechanics of the property and also the parcel itself as to are there any deed restrictions? So there was a parcel for the investor that I worked for that he sold to another investor and he didn't want him competing with his business. So the deed literally states that you can never ever put this type of business on that plot of land. So like even 10 years from now, that's going to be in the deed. That restriction is that you can't do that. And I don't know how you actually get a deed restriction removed or whatever, but. But that was in the deed as a. From the perch, the sale of that to them was that deed restriction put in. Then there was another parcel of land that I looked to purchase and it had. Somebody who had owned it many years ago wanted. Had this big idea to build these plazas and things like that. And he started the utilities. Well, in most towns and villages, when you do utilities to your property, you assign the utilities over to the town if they own the utility. So in this town, they. The public works department did the water and the sewer. So we had to bore under the road for a property and we had to hand over that to them. They performed the maintenance, they now own that, but we had to pay for it to be installed. So this guy had gone and done this and it was like a really prime location. But this guy had put easements in just all these weird directions because he had all these plans to do things, but he never did it. But it made it almost unbuildable to anybody because of all these easements that were granted to different people and different utilities on there that would have been really, really difficult to have those removed.

[Tony]

That's crazy. I've never had to deal with that. You know, I guess maybe the market that I made is slightly different thing, but deed restrictions, that's, that's new for me. I literally did not know that existed.

[Ashley]

Okay, so we're going to go to.

[Advertiser / Sponsor Voice]

The last sign here.

[Ashley]

And this is sign number seven. And this is if the deal requires you to stretch too thin. So who is listening and likes their sleep? Me. And I have stretched myself too thin before and I lose sleep over it and it is a stressful feeling. It is not a good feeling. So now I'm very risk adverse and I do not stretch myself too thin because I don't want to lose everything. And yes, I'm probably missing out on more reward because I'm not taking greater risk. But especially as a rookie starting out, if you don't have a lot to fall back on and you are literally taking your life savings and putting them into this one property and if it goes bad, what, you know what, what is going to happen? What's your worst case scenario? And if that worst case scenario is actually like pretty bad for you or for your family as far as financially, then maybe not take on such a big risk. Well, thank you guys so much for listening to this episode of Real Estate Rookie. I'm Ashley, he's Tony, and we'll see you guys on the next episode.

[Podcast Host / Announcer]

Said hey rookies, if you're watching this, we want you to apply to be a guest on the real estate rookie podcast. That's right. Ashley and I are looking for amazing.

[Tony]

Stories just like yours to be a.

[Podcast Host / Announcer]

Part of our real estate rookie podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals.

[Tony]

Even if you've done one deal, your story could help inspire the next listener.

[Ashley]

As a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story, give your experience on how you got it done to help inspire someone else get their first deal.

[Podcast Host / Announcer]

So head over to biggerpockets.com guest if you want to be a part of our show again. That's biggerpockets.com guest and we'd love to have you on.

[Advertiser / Sponsor Voice]

Want to invest in real estate but don't have the time or know the best local markets? Rent to Retirement has got you covered. Here's the deal. They've helped thousands of investors just like you find turnkey homes across the best US Markets. And best of all, they do all the heavy lifting for you. With over 255 star ratings on bigger pockets, Rent to Retirement experts help you build strategies to retire early through real estate. And right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties. Just for example, you can get up to 30% off new build prices or you can get 0% down loan options or interest rates available as low as 3.99%. So don't miss out. These deals will not last. Text REI to 33777 or visit biggerpockets.com retirement to start investing in top cash flow markets today.