The Biggest Risk Factors That Make or Break a Real Estate Deal, According to Experienced Investors

Jul 2

Not every real estate deal fails because of bad luck. Most fail because of avoidable mistakes—ones that experienced investors have learned to spot before they write the first check. Owen, Co-Founder of Liquid Lending Solutions, sat down to share the risk factors he watches most closely, both as an investor and as a hard money lender.

1. Paying Too Much

Liquid Lending is a hard money lending firm that has funded over $100 million across 400+ real estate transactions. Owen starts, "You can never go back in time and get your basis back. So paying too much is the biggest risk."

The first thing he looks at is the relationship between the purchase price, the after-repair value (ARV) (meaning what the property will be worth after renovations), and the scope of work needed to get there. If those numbers don't line up, it's a no-go.

2. Underestimating Rehab Costs

After the purchase price, rehab budgets are where deals most often fall apart. Owen shared a telling sign: "If it's a complete house remodel and they have $15,000 budgeted—including kitchen remodel, bathroom remodel, all the fixtures, paint, flooring, all that—you know that they're not doing a good job of estimating rehab costs."

A thin budget signals that the investor hasn't done proper due diligence, which creates risk throughout the entire deal.

3. Forgetting to Count the Soft Costs

"Soft costs" are all the expenses beyond construction—and they add up fast. Owen explained that many investors only think about their contractor bill, not everything else running in the background:

Utility bills (electric, water, gas)
Lawn care and snow removal
Locksmithing and security
Property management fees
Property taxes and insurance
Interest payments to the lender
Closing costs and agent commissions when selling
Refinancing costs if keeping the property as a rental

"You're going to be holding this property for probably four, five, six months. So you're going to have utility costs, lawn care, snow removal, all those things—and you're going to have interest that you're going to have to pay."

4. Not Having Enough Cash Reserves

Even a well-planned deal can take longer than expected.

Owen stressed that investors need to prepare for timelines to stretch and have the cash reserves to handle it: "You're going to own this for three months. That's great. What if it goes to six months? Are you going to be able to make your interest payments?" Running out of reserves mid-project is one of the fastest ways to break even, or worse.

5. Less Borrower Experience for the Deal Complexity

Owen also flagged the combination of a first-time investor taking on a large, complex rehab as a significant red flag, especially in older homes: "There is so much risk involved with those, especially in older homes when they have older systems that are no longer up to code. So you have to be really careful with that."

On top of code issues, theft is a real concern in some markets. AC units, copper piping, and furnaces are commonly stolen from properties sitting vacant during renovation. These are costs that don't appear in any original budget.

6. Ignoring Appraisal Risk When Refinancing

For investors planning to refinance (pay off the short-term loan using a new, long-term bank loan) and hold a property as a rental, Owen flagged a newer and growing risk: "Appraisers are not giving the full value or as high a value as they have in years past. I think they're being more cautious."

If an appraisal comes in lower than expected, the bank offers less money...meaning the investor has to pay the difference out of pocket. Owen's advice: don't rely on a single comparable sale to justify your numbers, and focus on markets with lots of similar transactions where values are easier to verify.

What Makes a Deal Solid?

According to Owen, the safest deals share a few common traits:

A realistic purchase price with a clear margin built in
A rehab budget that accounts for the full scope—and then some
A complete picture of soft costs from day one
Adequate cash reserves for a longer-than-expected hold
A borrower with relevant experience for the deal's complexity
Properties in active markets with easy-to-find, comparable sales

Real estate investing rewards preparation. The investors who succeed aren't the ones who get lucky—they're the ones who account for risk before it catches them off guard. If you're interested in learning more, reach out to Liquid Lending.