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Why We Walk Away From Deals That Pencil Out Fine A spreadsheet can tell you a Franklin property clears its debt service, covers taxes and insurance, and...
A spreadsheet can tell you a Franklin property clears its debt service, covers taxes and insurance, and leaves a little cash flow on top. That's the deal penciling out. And a deal that pencils out is exactly the kind we've passed on more than once, on purpose, sometimes to a client's initial surprise.
The math is the easy part. It's also the part most likely to talk you into something you'd regret about eighteen months in.
Every acquisition model runs on assumptions you feed it. Rent, vacancy, repair reserves, how long the current lease has left. Change any one of those inputs and a "fine" deal turns thin or turns strong.
The problem is that a lot of listings hand you the rosy version of those inputs. Full occupancy at rents that were set three years ago. A repair reserve that assumes the roof and HVAC have another decade in them.
No line at all for the two months it takes to re-tenant a space near, say, a stretch of Columbia Avenue where a similar unit sat empty most of last spring.
We rebuild the model with the boring, realistic numbers before we ever talk about whether it pencils. When it still works after that, we get excited. When it only worked on the seller's assumptions, we've learned to keep walking.
Some deals clear every math test and still don't belong in a particular client's plans. A retail strip in Franklin might cash flow beautifully and require hands-on management that an out-of-state investor has no appetite for. That mismatch doesn't show up in a cap rate.
We ask what the property demands, not just what it returns. Does it need a landlord who can be there in two hours when a tenant's HVAC quits in July? Does it lock up cash that a client actually needs liquid for a purchase they mentioned wanting next year?
A deal that pencils fine for a generic buyer can be genuinely wrong for the specific person sitting across the table. That's the part a model never accounts for, and it's usually the part that matters most.
A deal that barely clears its numbers has no margin for the ordinary stuff that happens to buildings. A tenant leaves early. A property tax reassessment nudges the escrow up.
A parking lot that needs resealing sooner than the seller let on.
None of those are disasters on their own. Stacked on a deal that only worked at full performance, they turn a modest positive into a monthly drain. That's the difference between a deal that pencils and a deal that holds up when reality shows up.
We'd rather pass on a thin-margin property than hand a client a building that punishes them for a slow leasing season.
Price a Franklin acquisition in isolation and it can look reasonable. Put it next to what's actually trading in the same submarket and the story sometimes changes. A commercial space listed at a number the surrounding blocks don't support is a deal that pencils today and appraises short tomorrow.
We spend real time on what's selling and leasing nearby before we get attached to any single property. If the immediate area is signaling softer demand, a "fine" price is really an above-market price in disguise. The spreadsheet won't flag that.
The neighborhood will, if you read it.
Clients don't always love hearing that a property they were excited about isn't the one. It feels like we're standing between them and progress. But the whole reason to work with someone on acquisitions is to have a partner who's willing to say no to the deals that would cost you later.
At Redbird Real Estate, passing on a mediocre deal is not us being difficult. It's us protecting the reason you hired us, which was never "buy something," it was "buy the right thing." Any agent can help you close a transaction.
Fewer will tell you to keep your money in your pocket this month.
The deals we walk away from are how we earn the trust to say yes on the ones we don't.
The goal isn't a deal that survives the math. It's a deal that gets stronger the more honestly you look at it. Realistic rents that still work.
A tenant or a location with a reason to stay put. Numbers that hold up when we stress-test them against a slow leasing stretch.
Those deals exist in and around Franklin, and they're often quieter than the ones that show up polished and pre-pitched. They don't announce themselves as bargains. They just keep making sense every time you run the numbers again.
When we find one of those, walking away has never crossed our minds. And the reason we recognize it is that we've said no to a long line of deals that merely penciled out fine.