The 5 Red Flags That Kill a Commercial Deal (Before It Even Starts)
In commercial real estate, not every deal is a good deal. In fact, some of the best investors will tell you their greatest wins weren’t properties they bought—they were the bad ones they walked away from.
New investors often get caught up in the excitement of chasing their first deal. They run the numbers, talk to brokers, and start imagining future cash flow. But here’s the hard truth: if you don’t know what red flags to look for, you risk wasting time, money, and energy on deals that were dead from the start.
The good news? Most bad deals announce themselves early—if you know what to watch out for.
In this post, we’ll break down the five biggest red flags that should make you pause, rethink, and possibly walk away before you waste weeks underwriting or thousands in due diligence.
Because in CRE, protecting your downside is just as important as chasing upside.
Red Flag #1: weak rent roll
The rent roll is the backbone of any commercial property—it tells you who the tenants are, how much they’re paying, and how reliable that income is. If the rent roll is weak, the deal is weak.
Here’s what to watch for:
Short-term leases: If tenants are only locked in for a year or less, you’re at risk of sudden turnover.
Below-market rents: A property might look “stable” on paper, but if the tenants are paying far less than market rate, the seller’s NOI is artificially low—or you’re looking at an uphill battle to raise rents.
High tenant concentration: One tenant paying 70% of the rent means you don’t have a property—you have a business tied to their success. If they leave, your income vanishes.
Late or inconsistent payments: A history of missed rent or payment plans is a flashing red light.
A solid rent roll tells you the income is reliable. A shaky one tells you this property is a gamble.
Pro Tip: Always compare current rents against market comps. If tenants are paying under-market, ask yourself: Is there a realistic path to increasing rents—or will it drive tenants out?
Red flag #2: Expenses that don’t add up
If income is the heartbeat of a deal, expenses are the arteries—and when they’re clogged or misrepresented, the whole investment falls apart.
One of the most common tricks in a bad deal is underreported expenses. A seller might show an expense ratio of 10–15% when similar properties in the market operate at 35–40%. On paper, it looks like the building prints money. In reality, those missing costs will come back to you the moment you take ownership.
Watch out for:
Deferred maintenance hidden by fresh paint or cosmetic upgrades.
Missing reserves for roof, HVAC, or parking lot replacements.
Lowball property taxes—especially if the assessment will reset after purchase.
“Owner-paid” utilities that aren’t disclosed in the marketing package.
When expenses don’t line up with market benchmarks, that’s not a small oversight—it’s a red flag that the numbers are being manipulated, whether intentionally or not.
Pro Tip: Always normalize expenses during underwriting. Don’t rely on the seller’s pro forma—recast the financials with realistic operating costs based on market data.
Red flag #3: unrealistic Expectations
If a deal looks “too good to be true,” it usually is.
Brokers love to market properties with glossy pro formas that assume sky-high rent growth, zero vacancy, or expenses that magically shrink over time. These projections might look exciting in a pitch deck, but they rarely reflect how the property actually performs in the real world.
Here’s what to watch for:
Aggressive rent growth assumptions: Rents don’t rise 10% per year forever. If the deal only works with unrealistic growth, it’s not a deal.
Zero vacancy: Every property has turnover. Assuming perpetual full occupancy is a setup for disappointment.
Magical expense cuts: Unless you have a specific operational plan, assume expenses will stay steady—or increase with inflation.
The danger is falling in love with a pro forma instead of the property’s actual financials.
Pro Tip: Always underwrite with conservative assumptions. If the deal still works under stress-tested scenarios—slightly higher vacancy, slower rent growth, normal expenses—you’ve got something worth pursuing. If not, walk away.
Red flag #4: problematic location or zoning
In commercial real estate, the wrong location can sink the right building.
A property may look solid on paper, but if it sits in a declining submarket, has poor access, or faces restrictive zoning, your long-term upside disappears. Remember: you can renovate a building, but you can’t change where it sits.
Watch out for:
Declining demographics: Shrinking population, low job growth, or reduced traffic counts.
Access issues: Properties tucked behind hard-to-navigate roads, or industrial sites without truck access.
Zoning restrictions: Outdated zoning that limits the types of tenants or future redevelopment potential.
Competing supply: If new construction is flooding the market nearby, your “great deal” could sit vacant.
Smart investors know that location is more than just a street address—it’s about demand drivers, visibility, and long-term viability.
Pro Tip: Always study the submarket. Ask: Who are the tenants here today, and who will they be in 10 years? If the answer isn’t clear, it’s time to step back.
red flag #5: financing Doesn't work
Even if the property looks great on paper, if the financing doesn’t pencil out, the deal falls apart.
Commercial real estate is fueled by leverage. And while debt can amplify returns, it can also expose weaknesses. If your projected cash flow can’t comfortably cover debt service, you’re taking on unnecessary risk.
Watch out for:
DSCR below 1.25: Lenders want to see at least a 25% buffer between NOI and debt service. If the numbers don’t hit, financing will be tough—or impossible.
Unfavorable loan terms: Adjustable-rate loans in a rising interest rate environment, short amortization periods, or high fees that eat into returns.
Over-leverage: Stretching to a higher loan-to-value (LTV) ratio to make a deal “work” usually backfires.
If the debt doesn’t align with your income projections, it’s not a deal—it’s a liability.
Pro Tip: Underwrite with today’s debt terms, not yesterday’s. Stress-test the financing against rising interest rates or tighter lending conditions. If the numbers still hold, you’ve got a deal worth pursuing.
Conclusion
In commercial real estate, the biggest wins don’t always come from the deals you close—they often come from the deals you avoid.
A weak rent roll, questionable expenses, unrealistic projections, problematic location, or shaky financing are all signs that a property isn’t worth your time, no matter how good the story sounds.
The key is learning to recognize these red flags early. The faster you can filter out bad deals, the more energy you can devote to finding—and closing—the right ones.
Remember: walking away is not losing. It’s protecting your capital, your time, and your confidence.
As Tyler often reminds his students:
“There will always be another deal. Don’t chase bad ones—wait for the right one.”
With discipline and focus, you’ll spend less time spinning your wheels and more time building a portfolio of properties that truly move you toward financial freedom.
For those interested in delving deeper into commercial real estate investing, check out our course offerings. The courses provide in-depth insights, real-world case studies, and practical strategies to help you navigate the complexities of commercial real estate and achieve success in your ventures. Whether you're a seasoned investor or just starting in the world of commercial real estate, there's always more to learn. Equip yourself with the knowledge and tools you need to thrive in commercial real estate!
In commercial real estate, not every deal is a good deal. In fact, some of the best investors will tell you their greatest wins weren’t properties they bought—they were the bad ones they walked away from.
New investors often get caught up in the excitement of chasing their first deal. They run the numbers, talk to brokers, and start imagining future cash flow. But here’s the hard truth: if you don’t know what red flags to look for, you risk wasting time, money, and energy on deals that were dead from the start.
The good news? Most bad deals announce themselves early—if you know what to watch out for.
In this post, we’ll break down the five biggest red flags that should make you pause, rethink, and possibly walk away before you waste weeks underwriting or thousands in due diligence.
Because in CRE, protecting your downside is just as important as chasing upside.