Curious how people are thinking about multifamily underwriting right now
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Hi @Ying Tang, welcome BP!
From a lender’s perspective, underwriting to a future refinance can be a sound strategy—but it should be viewed as upside, not the foundation of the investment thesis.
The most disciplined borrowers and lenders approach today’s multifamily market with one core principle: the deal should make sense under today’s conditions, and any future rate improvement should be treated as a bonus.
How lenders view this strategy
When evaluating multifamily opportunities, lenders typically ask:
- Can the property support the debt at today’s interest rates?
- Does the borrower have sufficient liquidity to absorb temporary negative cash flow?
- Is there a clear path to increasing NOI through rent growth, expense reduction, or operational improvements?
- If rates do not decline, does the sponsor still have a viable hold strategy?
If the answer to those questions is yes, then buying in today’s market can be very attractive.
Why this may be an opportune time to buy
Periods of elevated rates often create:
- Less buyer competition
- More motivated sellers
- Better pricing opportunities
- Greater negotiating leverage
Investors with adequate liquidity and patience can acquire quality assets at basis levels that may look very attractive over the long term.
The refinance should be considered optionality
If rates decline by 50–100 basis points over the next 12–24 months, you may benefit from:
- Improved DSCR
- Higher cash flow
- Lower debt service
- Potential return of equity through cash-out refinance
However, relying solely on that outcome introduces unnecessary risk because rate movements are outside your control.
What stronger borrowers are doing today
The most successful sponsors are:
- Underwriting with conservative rent and expense assumptions
- Stress-testing for flat or modestly declining rates
- Maintaining strong cash reserves
- Locking in fixed-rate debt when appropriate
- Ensuring multiple exit strategies
A lender’s rule of thumb
If the deal:
- Covers debt service under current market rates,
- Has a manageable carry if performance is temporarily weak,
- Provides meaningful upside through NOI growth, and
- Still works if rates stay elevated longer than expected,
then it is likely a well-structured acquisition.
Yes, this can be an excellent time to buy multifamily—especially for well-capitalized investors with a long-term horizon.
Just avoid underwriting a future refinance as a necessity. If the deal works today and rates improve later, that refinance becomes a significant bonus rather than a requirement for success.
8 Replies
- 5moGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
Your assumption is the risk. What happens if rates never go down?
The apartment owners that are getting foreclosed on today are ones that assumed cap rates would stay flat or go down. Instead they went up. They did not underwrite an alternative scenario.
Hi @Ying Tang, welcome BP!
From a lender’s perspective, underwriting to a future refinance can be a sound strategy—but it should be viewed as upside, not the foundation of the investment thesis.The most disciplined borrowers and lenders approach today’s multifamily market with one core principle: the deal should make sense under today’s conditions, and any future rate improvement should be treated as a bonus.
How lenders view this strategy
When evaluating multifamily opportunities, lenders typically ask:
- Can the property support the debt at today’s interest rates?
- Does the borrower have sufficient liquidity to absorb temporary negative cash flow?
- Is there a clear path to increasing NOI through rent growth, expense reduction, or operational improvements?
- If rates do not decline, does the sponsor still have a viable hold strategy?
If the answer to those questions is yes, then buying in today’s market can be very attractive.
Why this may be an opportune time to buy
Periods of elevated rates often create:
- Less buyer competition
- More motivated sellers
- Better pricing opportunities
- Greater negotiating leverage
Investors with adequate liquidity and patience can acquire quality assets at basis levels that may look very attractive over the long term.
The refinance should be considered optionality
If rates decline by 50–100 basis points over the next 12–24 months, you may benefit from:
- Improved DSCR
- Higher cash flow
- Lower debt service
- Potential return of equity through cash-out refinance
However, relying solely on that outcome introduces unnecessary risk because rate movements are outside your control.
What stronger borrowers are doing today
The most successful sponsors are:
- Underwriting with conservative rent and expense assumptions
- Stress-testing for flat or modestly declining rates
- Maintaining strong cash reserves
- Locking in fixed-rate debt when appropriate
- Ensuring multiple exit strategies
A lender’s rule of thumb
If the deal:
- Covers debt service under current market rates,
- Has a manageable carry if performance is temporarily weak,
- Provides meaningful upside through NOI growth, and
- Still works if rates stay elevated longer than expected,
then it is likely a well-structured acquisition.
Yes, this can be an excellent time to buy multifamily—especially for well-capitalized investors with a long-term horizon.
Just avoid underwriting a future refinance as a necessity. If the deal works today and rates improve later, that refinance becomes a significant bonus rather than a requirement for success.
Your question applies to any asset class, whether it is real estate or equities. I personally believe valuations have become more realistic in many markets, and started buying this year after 4 yrs on the sidelines.
I think there's room for valuations to come down, so I'm cost averaging back into the market. Purchased a few 4-units with 40 yrs terms with 10 yrs IOs, and will look to pick up more properties over next few years.
One property is negative CF even with IO (high COLA) while the others are break-even (sunbelt). Although CF looks bleak in Yr1, the IRRs are still attractive over 10+ yr hold.
There are many real headwinds to rent growth, but at the moment I'm more concerned about inflation. My 2026 purchases are a bet on inflation. I'll re-assess my acquisition philosophy next year, but generally think next few years are buying windows for small MF.
- 5moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesHey Ying, I actually think your mindset is pretty reasonable as long as the deal still survives without the refinance. A future refi should feel like upside, not the thing holding the entire deal together. A lot of investors made the mistake in past cycles of assuming rates would drop quickly and got stuck holding properties that never really worked at current debt costs. That said, buying during higher rate environments can absolutely create opportunities because competition tends to cool off, sellers become more negotiable, and you can sometimes get better pricing or terms than you could in a lower-rate frenzy. If you have strong liquidity and can comfortably absorb lower cash flow for a year or two, you’re already in a much safer position than investors who are stretched thin. I’d still stress test the property though — higher taxes, insurance increases, unexpected repairs, vacancy, and the possibility that rates stay elevated longer than expected. If the deal still feels manageable under conservative assumptions, then refinancing later can become a bonus that boosts returns instead of a rescue plan. A lot of the stronger long-term investors I know are still buying today, they’re just underwriting much more carefully and prioritizing markets with strong fundamentals and long-term demand rather than chasing appreciation alone.
Quote from @Ying Tang:
At today’s rates, a lot of deals barely work. But if I model a refinance 1–2 years out at even 1% lower, suddenly the DSCR, cash flow, and IRR all look much healthier. My situation is a little different since liquidity/carrying the property short term isn’t really the issue. I can handle lower/slightly negative cash flow for a while if the long-term numbers make sense. So I keep wondering — is this actually the time to buy? Buy when rates are high, competition is lower, and wait for the refinance opportunity later? Or is relying on a future refi still too risky of a strategy? Curious how other people are approaching this market.
Jimmy Lieu, Red 1 Realty4.9122 Reviews - Banker · MA · Member since 2026 · 120 posts · 35 votes4mo
Ying, this is one of the most common questions I'm seeing from multifamily investors right now — and the honest answer is: it depends entirely on whether the deal works *today*, not on a rate you're hoping for tomorrow.\n\nHere's the framework I'd apply:\n\n**Underwrite at today's rate first.** If the deal doesn't cash flow — or barely breaks even — at the current rate, you're speculating on a refi, not investing in real estate. A 1% rate drop is meaningful, but it's not a rescue plan. The deal needs to stand on its own legs.\n\n**Model the refi as upside, not the thesis.** If the property cash flows at current rates and a future refi adds $200–$400/month per unit, that's a strong bonus scenario. But treat it as a sensitivity analysis, not the base case.\n\n**Watch your DSCR carefully.** Lenders underwriting multifamily today are stress-testing debt service coverage pretty conservatively. I've seen investors surprised that a deal they thought was solid doesn't pencil at the actual loan terms offered. Know your DSCR floor before you're in contract.\n\n**Factor in refi costs.** Closing costs, prepayment penalties (if any), and the timing of rate relief are all real variables. A refi in 18 months isn't free — model those costs into your projected returns.\n\nWith 31 years in the mortgage business, the deals I've seen go sideways most often are the ones where the investor's underwriting had "rate relief" baked into the base case rather than stress-tested against it.\n\nHope this helps — feel free to DM me if you want to talk through how to structure the underwriting on a specific deal.\n\nJim Driscoll
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