Today I want to share about the silent risks that burn even smart, well-intentioned multifamily investors. These risks hide inside pitch decks, proformas, and assumptions most people never question.
RISK #1 – FRAGILE RENT GROWTH
Many deals assume rent growth that is not supported by the market.
Three percent, four percent, sometimes even higher.
If job growth, wage growth, and absorption do not support it, the entire deal is standing on a fragile foundation.
RISK #2 – EXPENSES THAT ARE TOO LOW
If you see an expense ratio below 40 percent on a B or C class property, pause.
Underwriting begins with truth, not optimism.
RISK #3 – MINIMAL RESERVES
Deals with two or three months of reserves worry me.
The moment something goes wrong, investors feel it first.
Six months is my baseline.
RISK #4 – DEBT THAT DOES NOT MATCH THE BUSINESS PLAN
If your renovation timeline is 24 months, but your loan matures in 36 months with no rate protection, you have an issue waiting to happen.
RISK #5 – EXIT CAP RATE THAT IS TOO TIGHT
Assuming cap rate compression is not underwriting.
It is wishful thinking.
At minimum, I stress-test with 25 to 50 basis points of expansion.
These are just five of the dozens of silent risks I have seen over the years.
The goal is not to avoid real estate.
The goal is to invest with clarity.
I have something coming this week that will help you make sense of the numbers, even if you are new.
Stay tuned.
You will not want to miss what I am announcing on December 14th.
Vessi Kapoulian
Breaking down multifamily underwriting one step at a time to create educated and empowered investors