A property looks good on paper: strong location, positive cash flow, a market everyone wants to be in. Nothing in those numbers explains why, six weeks into diligence, the deal falls apart anyway.
Talked About at Dinner Parties
Jason Milton, CEO of Custom Capital, has heard the same assumption from first-time buyers for years. “I think the misconception is that finding a great deal is the most important thing in purchasing a deal,” Milton said. “I used to think that, too, a long time ago.” The instinct is understandable. A good deal is the part of the process an investor can see: a strong location, a tenant with a recognizable name, a cap rate that beats what’s available elsewhere. It’s also the part that gets talked about at dinner parties.
What that instinct leaves out is everything that happens after a buyer and seller agree on a price. A 2026 due diligence guide from Smart Capital Center calls inconsistent figures between a deal’s trailing twelve-month financials, its rent roll, and its offering memorandum the most consistent source of underwriting errors, and that’s before a buyer ever gets to inspections, environmental review, or financing.
Steps That Don’t Make a Good Story
“What is equally, if not more important, is the whole other side to it,” Milton said. “Underwriting the financials, doing the due diligence, property inspections with professionals, getting the financing approved.” None of those steps generate the kind of story an investor tells afterward. All of them can end a deal that looked perfect on the offering memorandum.
Money Moves HQ ranks insufficient due diligence first among costly commercial real estate mistakes, and its author says the costliest deals shared one trait: the buyer took the seller’s story at face value instead of verifying it independently. The same piece warns that sellers may defer maintenance or self-manage to hold down management fees, which can make a property’s net operating income look stronger than it is.
A 2026 due diligence checklist warns that a 15- or 21-day window, which competitive bidding can force, rarely leaves time to collect third-party reports, read the leases, and work through the financials. Missing estoppel certificates from major tenants cause trouble too. A tenant’s written confirmation that disagrees with the rent roll usually means a price renegotiation or a collapsed deal.
A Fine-Tooth Comb and Hundreds of Hours
“All of those things can kill a deal, or give you a bad deal,” Milton said. “All I have to do is find a good-looking deal that gets some good returns in a good market. But no.” What actually determines whether a deal performs the way its marketing materials promised is the work most investors never see: underwriting with what he called a fine-tooth comb, checking that a property is exactly what it claims to be, and the hundreds of hours that process takes.
In practice, that means going through trailing financials line by line, so errors of omission surface before they become the buyer’s problem after closing. Out-of-market buyers face a sharper version of the risk. An academic study of nearly 100,000 commercial real estate transactions from 1997 to 2009 found that out-of-state buyers paid an 8% to 11% premium over in-state buyers. An investor applying one metro’s assumptions to a property in another market, without drilling into submarket-specific data, is underwriting against numbers that may not apply to the deal in front of them.
Who Does the Work After the Offer
For its buyers, Custom Capital does much of that work itself. According to Milton, the firm’s team underwrites the financials, reviews the leases, arranges professional inspections, environmental reports, and ALTA surveys, and coordinates financing, so a first-time buyer isn’t running each of those steps alone.
Buyers also keep a line to the firm after closing. Custom Capital says it offers more outreach and direct access than a typical brokerage and, arguably, many syndications. Ongoing, hands-on oversight of a property is a separate matter. The firm’s asset management division is a paid service under its own contract and fee structure, and not every investor gets it.
Loving a Deal Too Early
Finding a good deal still matters. A property in the wrong location or with a weak tenant doesn’t become a good investment no matter how careful the diligence process is afterward. Milton’s misconception takes hold when the search is treated as the finish line. An investor who falls in love with a deal at the offer stage has already made it harder to walk away when diligence turns up a problem, and the properties that most need a buyer to walk away are often the ones dressed up well enough to make an offer attractive in the first place.
Deals hold up when the underwriting is allowed to take as long as it needs to.
This article is for general informational and educational purposes only and should not be construed as tax, legal, investment, or financial advice. Custom Capital does not act as a fiduciary, broker-dealer, or investment adviser. Commercial real estate investments involve risk, including possible loss of principal, and any outcomes or figures mentioned are illustrative only and not guaranteed. Readers should consult their own financial, tax, and legal advisors before making any investment decision.
Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.
