Module 10 | Risk Management and Red Flag Detection by Scott Lumley

Module 10 Training Video

Risk Management & Red Flag Detection

Master the art of avoiding disasters

42:15

Duration

Quality

✓

Completed

What You'll Learn in This Module

Master the art of avoiding disasters before they happen and learn to identify profitable opportunities.

Eliminate Common Disasters

Identify and avoid the most frequent mistakes that destroy wholesale deals.

Avoid Bad Neighborhoods

Screen locations and properties to avoid toxic situations and unmarketable assets.

Identify Title Clouds

Spot unsolvable title issues before they become expensive legal nightmares.

Scott's 30% Rule

Apply the proven cost vs. value formula to ensure profitable deals every time.

Common Disasters to Eliminate

Learn from others' expensive mistakes

Financial Disasters

Overestimating ARV: Leads to overpaying and unsaleable contracts

Underestimating Repairs: Hidden costs kill profit margins

Ignoring Market Conditions: Wrong timing equals no buyers

No Exit Strategy: Multiple ways out or no deal

Legal & Title Disasters

Skipping Title Search: Hidden liens and encumbrances surface later

Incomplete Chain of Title: Ownership gaps create legal issues

Ignoring Zoning Issues: Property use restrictions limit value

Environmental Problems: Contamination makes properties unsaleable

Neighborhood Analysis

Identify toxic vs. profitable areas

Toxic Neighborhoods to Avoid

Declining Property Values: Check 5-year price trends

High Crime Rates: Use police data and crime mapping

Economic Decline: Plant closures, high unemployment

Environmental Hazards: Flood zones, toxic sites nearby

Profitable Neighborhoods to Target

Stable/Growing Values: Consistent appreciation over time

Active Market: Fast days on market, multiple offers

Economic Growth: New businesses, job creation

Good Schools: Family-friendly areas hold value

Title Cloud Identification

Red flags that signal deal-killing title issues

Fatal Title Issues

• Missing heirs/probate issues
• Divorce proceedings pending
• Bankruptcy in progress
• IRS tax liens
• Mechanic's liens

Proceed with Caution

• Property tax delinquencies
• HOA liens (solvable)
• Utility liens
• Code violations
• Survey disputes

Generally Safe

• Clear chain of title
• Current taxes paid
• No outstanding liens
• Proper legal descriptions
• Valid previous transfers

Scott's 30% Rule

The proven formula for profitable wholesale deals

The Formula

Maximum Offer = ARV × 70% - Repair Costs - Your Profit

Keep total costs (repairs + profit) under 30% of ARV

✅ Good Deal Example

ARV (After Repair Value): $200,000

70% Rule Maximum: $140,000

Estimated Repairs: $25,000

Your Profit Target: $15,000

Maximum Offer: $100,000

Total costs: 20% of ARV ✓

❌ Bad Deal Example

ARV (After Repair Value): $200,000

70% Rule Maximum: $140,000

Estimated Repairs: $45,000

Your Profit Target: $15,000

Maximum Offer: $80,000

Total costs: 30% of ARV - Marginal deal

Pre-Deal Risk Assessment

Complete this checklist before making any offer

Property Analysis

Comparable sales analysis completed

Repair estimates from contractors

30% rule calculation verified

Multiple exit strategies identified

Legal & Title

Title search ordered and reviewed

Seller ownership verified

Property taxes current

No major liens or encumbrances

Scott's Pro Tips

Master strategies for risk-free deals

🔍 Due Diligence is Everything

Never skip the basics. A thorough property analysis prevents 90% of deal disasters.

💡 Trust Your Gut

If something feels off, it probably is. Walk away from questionable deals - there's always another opportunity.

Module 9: Legal Documents

Module 11: Property Management

Module 10 Complete! 🎉

You've mastered risk management and red flag detection. You now know how to eliminate common disasters, avoid toxic properties and neighborhoods, identify unsolvable title issues, and apply Scott's 30% rule for profitable deals.

Continue to Module 11