1. Unrealistic After Repair Value (ARV)

If the numbers look too good to be true, they probably are.

• Check sold comps (not just listings) within 0.5 miles and 3–6 months
• Be wary of claims that ignore market conditions or unique property issues
• Request an appraisal or have a trusted realtor validate projections

Quick Tip: If the ARV is inflated, everything else—from profit to return—is built on shaky ground.

2. Vague or Low Rehab Budget

When repairs are oversimplified, surprises become expensive.

• Look for a detailed scope of work and clear labor/material estimates
• Question round numbers or vague categories like “miscellaneous repairs”
• Ask: Is the budget realistic for this market and property condition?

Quick Tip: Undercapitalized rehabs cause delays, disputes, and dangerous corners.

3. Inexperienced or Unprepared Borrower

Charisma isn’t a substitute for competence.

• Ask about their track record: previous deals, mentors, partnerships
• Review their business structure, operating plan, and risk contingency
• See if they’ve considered permits, contractors, and timelines

Quick Tip: A great deal with an unproven operator becomes a risky experiment.

4. Weak or Missing Exit Strategy

Every deal needs an escape plan.

• Will they sell, refinance, or hold as a rental—and what’s their backup?
• Can they explain the timeline and buyer/lender pipeline?
• Ask what happens if the market shifts or delays occur

Quick Tip: No clear exit means no guaranteed return. Lenders must understand how they’ll get paid.

5. High Loan-to-Value (LTV) Ratio

More leverage = more risk.

• A healthy LTV is between 65–75%
• Deals with 85–90%+ LTV may leave little room for error
• Require equity injection from the borrower or cross-collateral assets

Quick Tip: Stay conservative. It’s better to miss a risky deal than lose your principal.

Bonus Section: Quick-Reference Checklist

• Have the rehab numbers been verified?
• Is the ARV supported by solid comps?
• Does the borrower have experience—or a team?
• Is there a clear exit strategy with a timeline?
• Are you lending at a safe LTV?