Why Walking Away From a Deal Is Sometimes the Most Profitable Move

At the end of last year, our team advanced a deal through underwriting, financing, and due diligence to the point where a closing date was being discussed. Investor capital had been lined up, lenders were engaged, and the transaction appeared viable from every outward signal.

Then new information surfaced.

What followed was not a theoretical exercise or a change of heart. It was a deliberate decision to step away from a deal we had spent months pursuing.

Some of the best deals I’ve done are the ones I didn’t buy. This was one of those moments where discipline mattered more than momentum.

Everything was ready to go. Capital was fully committed, timelines were set, and from the outside, it looked like a deal that was going to close. But commercial real estate has a way of rewarding patience and punishing shortcuts, especially late in the process.

In commercial real estate underwriting, walking away when new information changes the risk profile is often the most responsible and profitable decision a sponsor can make.

When a Deal Feels Inevitable

At a certain point in a transaction, deals can start to feel inevitable. You have spent months underwriting, negotiating terms, coordinating lenders, and communicating with investors. Capital is raised, expectations are set, and there is a natural pull to just get it done.

That is also when risk quietly increases. Momentum can create false confidence, and sponsors who confuse progress with certainty often stop asking hard questions. In our experience, that is exactly the moment when discipline matters most.

A deal is not good because it is far along. It is only good if it still works under conservative assumptions.

Due Diligence Is Where Reality Shows Up

Due diligence is not a box-checking exercise, although my due diligence checklist has a lot of boxes to check. It is where assumptions meet reality.

As inspections progressed, we uncovered building repair issues that were materially larger than what initial underwriting supported. These were not cosmetic upgrades or optional improvements. They were fundamental repairs that would require significant capital and introduce execution risk that simply was not reflected in the early numbers.

Every property has issues. That is expected. What matters is whether the scope, cost, and timing of those issues still fit within a conservative risk framework.

In this case, they did not.

The Difference Between Volume and Quality

This is where many sponsors get tested.

Closing this deal would have increased volume. It would have checked the “deal closed” box. From the outside, it might have looked like progress. But volume is not the goal. Capital preservation is.

At ProperXit, we are not building a business around how many deals we close. We are building one around how well investor capital is protected across market cycles. That means being willing to slow down, reduce deal count, and accept short-term disappointment when the data no longer supports the original thesis.

Quality matters more than activity.

The Most Dangerous Deals Are the Almost-Good Ones

Bad deals are easy to kill. The numbers do not work, financing falls apart, or the risk is obvious early.

The hardest deals to walk away from are the ones that are almost there.

By that point, time has been invested, relationships are involved, and capital is already lined up. That is when ego, optimism, and sunk-cost thinking can creep in. Good sponsors recognize this moment for what it is, a risk checkpoint rather than a finish line.

CRE risk management means being willing to say no even after saying yes earlier, when new facts demand it.

How We Think About Capital Preservation in Practice

Our underwriting is intentionally conservative. We assume things will go wrong, costs will be higher than expected, and timelines will stretch. That is why we stress test deals and build in reserves from day one.

But conservative underwriting only works if you are willing to respect it.

When new information shows that even conservative assumptions are being pushed beyond reason, the responsible move is to stop. Protecting capital sometimes means absorbing sunk costs, lost time, and uncomfortable conversations. That is part of being a disciplined commercial real estate sponsor.

Investor trust is built in these moments, not when everything goes right, but when decisions get hard.

Renegotiation Is Usually the First Move

When material issues surface during due diligence, walking away is rarely the first step. In most transactions, the appropriate response is to go back to the seller and attempt to renegotiate pricing or terms to reflect the newly discovered risk. That can take many forms: purchase price reductions, seller credits at closing, repair escrows, or changes to timing that allow work to be completed before ownership transfers.

Renegotiation is not a sign that a deal is broken. It is part of disciplined underwriting. The purpose of due diligence is not simply to confirm assumptions. It is to create leverage to correct them.

In this case, we evaluated that path carefully. The issue was not just the existence of repairs, but the scale of the work relative to already narrow margins. Even with meaningful concessions from the seller, the transaction would have required taking on execution risk that no longer fit within our return thresholds or capital preservation framework. The math simply did not leave enough room for error.

That is an important distinction for investors to understand. Some deals can be saved with price. Others cannot. When downside risk overwhelms upside, renegotiation becomes a delay rather than a solution.

How to Learn More About Due Diligence

For readers who want a deeper look at how we approach diligence in practice, I previously wrote a detailed breakdown of our process at ProperXit, including inspections, risk evaluation, and underwriting adjustments. You can find that article here: https://www.properxit.com/insights/due-diligence.

I would also recommend The Due Diligence Handbook for Commercial Real Estate by Brian Hennessey. It is one of the more practical guides available for understanding how to think through physical inspections, financial reviews, and deal risk before capital is committed.

What Investors Should Take Away

If you are evaluating a sponsor or considering passive real estate investing, pay close attention to behavior, not just outcomes.

• Do they walk away when risk increases late in the process?

• Are they willing to protect capital even when it costs them time or momentum?

• Do they prioritize deal discipline over deal volume?

Those answers tell you far more than projected returns ever will.

Closing

Walking away from this deal was not easy, but it was clear.

This is what capital preservation looks like in real life. Not in theory, not in a pitch deck, but in decisions that put investor capital ahead of ego or activity. Our job is to protect capital first and pursue returns second.

We would rather miss a deal than force one. That is how long-term wealth is built the right way.