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Jun 14, 2019

A bad real estate deal is something every investor strives to avoid. I’m pretty sure that every real estate deal we go into looks rosy in the beginning. The numbers look good, the property looks good, the market looks good, and the cash flow looks good.

Then maybe some time goes by, and you’re standing there wondering what went wrong. I know I’ve been there. While it could be the case where we made an error in judgement when entering into the investment, often something changes that’s outside of our control. For example, in our area too many condos being built lately leading to higher vacancies in apartment buildings. And in some instances, if you got a brand new building right behind your building that can't sell as a condos, then they are renting it out and the rents are same as you are renting in your old building then the chances are pretty good that you are losing some of the tenants and that's what happened to us.

So, how do we stay on top of them?

For some investors, an unsatisfactory deal can serve as a lesson on the importance of due diligence. Sometimes, its very hard to exit a bad deal unless you can take a huge loss on your investment and pay back to your investors as much internally as possible and in your case you don't end up with anything. So to avoid such huge loss, save some money that you get may be through the acquisition fees to help that transition. Or else, talk to your investors about hanging on because sometimes the 5 year plan can change it to 10 year plan and you know what that 10 year plan is still better than 95% of the investments out there. So keep that in mind when your investors aren't happy with you. That is why due diligence is very important. In addition to selling, there are also some other strategies available. If you are not cash flowing enough but there are enough equity, you could increase your yield by refinancing and reinvesting that cash in something that cash flows more.

Of course, you can sell the property. If you take a loss, you may be able to offset other gains somewhere else in your portfolio. That being said, deciding upon the right strategy is really up to the individual and depends on their situation.

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