In most real estate transactions, the sequence of financial commitments works against the buyer. Non-refundable due diligence fees, earnest money deposits, inspection costs, and appraisal fees are all paid before the buyer has a clear picture of a property’s actual condition. When problems surface – foundation damage, structural issues, faulty wiring – buyers who walk away lose that capital entirely. According to data from Redfin cited by Jeff Emalaba, founder of InvestFusion, roughly 40,000 deals collapse across the U.S. every month. Each one represents capital that buyers committed and will not recover.
Emalaba estimates that buyers risk a minimum of $5,000 to $7,000 per failed deal in non-recoverable costs. The problem is structural, not incidental – and it affects new investors and veterans alike.
Much of the risk traces to a specific feature of buyer disclosure documents. In North Carolina, sellers responding to questions about known property defects can select “no representation” – effectively declining to disclose issues without technically lying. Emalaba points to this as the central vulnerability.
“The seller is not compelled by law to disclose issues that affect their property,” he says. “So it’s you, the buyer, that needs to know how to figure out what is wrong.”
The gap between what listing platforms show and what a property actually contains is wide. MLS data, Zillow listings, and similar platforms present seller-supplied information. They are not investigative tools. “They list what is given to them,” Emalaba says. “They’re not due diligence, they’re not your private investigator.”
His own experience illustrates the cost. On a duplex in Valdese, North Carolina, he paid $5,000 in earnest money, $5,000 in non-refundable due diligence fees, $700 for inspection, and $625 for appraisal – over $11,000 total. When the inspector finally accessed the property, the findings were severe: foundation issues, structural damage, electrical problems, and roofing deficiencies. The seller declined to refund any fees.
Emalaba reported the seller to the North Carolina Realtor Association. The property was removed from Zillow, he says, but reappeared two weeks later with no additional disclosures.
The capital-at-risk problem scales dramatically in commercial real estate. Emalaba describes a $45 million single-tenant property acquisition in Dallas where the tenant – a government contractor – activated a lease exit clause eight months after purchase. With a single-purpose buildout that could not be quickly repurposed, the property sat vacant. The loss exceeded $5 million before the asset could be sold.
The lesson he draws is specific: no single tenant should occupy more than 20% of a commercial property’s square footage. Beyond tenant concentration, he emphasizes tracking tenants’ five-year financial history – gross profit, net operating income, SEC filings where available – to assess whether they can sustain rent payments over time.
“Once that tenant gets up and leaves, your whole world collapses,” he says. “Commercial is not a game you play lightly.”
Emalaba says he applies this rule regardless of the tenant’s brand recognition. Even a nationally known chain represents concentration risk if it occupies the entire property, because any single-tenant departure leaves the owner with no income and a building designed for one specific use.
The popular buy-rehab-rent-refinance strategy, widely promoted online, often underestimates the cost and complexity of fixing serious structural problems. Emalaba uses a comparison: two sellers each offering a Rolls Royce at $100,000. One has a dead engine and needs a repaint. The other runs fine, but the owner is in financial distress. The smarter purchase is obvious, yet many investors chase properties requiring foundation or structural work because online content makes renovation sound straightforward.
“Online investors are not investors,” he says.
Emalaba says the only work he wants to do on a property is what he calls vanilla upgrades – painting, carpeting, landscaping. Fixing foundations and structural damage, he argues, introduces contractor dependencies and costs that are difficult to predict and impossible to fully control. Distressed properties will always exist in the market, he says. The question is whether the distress lies in the seller’s circumstances or in the property’s physical condition – and investors who conflate the two take on far more risk than they realize.
With mortgage rates hovering around 6% and showing no signs of the dramatic declines many buyers spent the past two years waiting for, Emalaba argues the focus should shift from timing the rate cycle to structuring each deal so that cash flow covers the mortgage regardless of the rate. He advises buying below both the asking price and the appraised value, then generating rental income sufficient to cover the monthly payment entirely.
“If you are living rent-free, you don’t care about the six, seven percent anymore because you’ve already stacked the wins in your favor,” he says.
The strategy reframes how investors think about interest rates. Rather than waiting for lower rates before buying, Emalaba says buyers who secure enough built-in equity and rental income can refinance later when rates do fall – lowering their monthly costs on a property that is already cash-flow positive. The risk of waiting, he argues, is that capital sits idle while potential deals pass by.
“Those who look at the sky and think it’s going to rain before they leave home will never get any job done,” he says.
About the Expert: Jeff Emalaba is founder of InvestFusion, a real estate investment firm.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
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