In real estate, saying “yes” to the wrong deal can be more damaging than saying “no.” While most lenders know the basics — like reviewing credit scores or checking property values — some of the most dangerous red flags are subtle, and even seasoned investors miss them.
The reality? Not every deal is worth funding. Protecting your capital requires more than speed — it requires discernment.
1. Borrowers Without a Clear Exit Strategy
If a borrower can’t explain exactly how they’ll pay you back, that’s a problem. Are they flipping? Holding as a rental? BRRRRing? Do they have a realistic timeline and comps to back it up? Too often, investors get caught up in the “potential” without confirming the exit. Without a solid plan, your capital could be trapped far longer than expected.
Red flag: Vague answers like “I’ll figure it out once the rehab is done.”
2. Over-Leveraged Borrowers
A deal can look great on paper until you realize the borrower is juggling three other projects, all dependent on future profits. Even experienced investors can spread themselves too thin — and that puts your repayment at risk.
Red flag: If their liquidity is low, their debt load is high, and your loan is just one of many, pause before funding.
3. Unrealistic ARVs (After-Repair Values)
Optimism is not a strategy. When a borrower claims their property will be worth $350K after rehab, but comps in the neighborhood top out at $280K, you’re looking at an inflated ARV that jeopardizes repayment.
Red flag: When ARV depends on “future appreciation” or compares against higher-end neighborhoods rather than immediate comps.
4. Weak or Unverified Contractors
A project lives or dies by its execution. Borrowers who hire the cheapest contractor or fail to provide a detailed scope of work often run into delays, shoddy work, and ballooning costs.
Red flag: No written bids, no timeline, or contractors with no track record in similar projects.
5. Borrowers Who Resist Transparency
Trust is earned through openness. If a borrower avoids sharing documents, brushes off due diligence questions, or pressures you to “just trust them,” that’s not confidence — that’s concealment.
Red flag: Evasive answers, missing paperwork, or urgency that feels more like desperation than opportunity.
6. Properties With Hidden Anchors
Some properties come with baggage that borrowers overlook: code violations, liens, environmental issues, or properties in markets with declining demand. Even if the borrower is solid, a bad asset can sink a deal.
Red flag: Sellers offering “too good to be true” prices without explaining why, or properties in neighborhoods with declining rent rolls and rising vacancy.
The Takeaway
Great deals are built on great fundamentals. When borrowers, numbers, or properties show cracks, it’s better to walk away than to patch holes with hope.
As a lender, your best protection isn’t just collateral — it’s discernment. And the investors who win long term are the ones who know when to say “no.”
💡 Pro Tip for Investors & Lenders: Build a written checklist of your personal red flags. If a deal triggers more than one, step back. Emotional lending is expensive lending.
👉 Want to partner on deals where red flags are screened early and risk is managed with precision? That’s exactly what we do at Conduit Capital.
📲 Learn more at youconduitcapital.com
