What’s Been the Biggest Challenge Finding Multifamily Deals Lately?

Question

Lately I’ve been spending more time looking at small multifamily opportunities (mainly 5–20 units) and it seems like finding a “good” deal has gotten a lot tougher than it was a few years ago.

Curious what others are running into most right now:

• Sellers holding onto old pricing expectations?• Financing/rates making deals hard to pencil?• Lack of inventory?• Competition for off-market deals?• Renovation costs?

Would be interesting to hear what’s been the biggest challenge in your market lately and how you’re adapting to it.

Wale Lawal · Answer

@Dalton Mongold

It’s really a combination of all of those things at the moment, but definitely the one that’s really jumping out at me is how sellers are pricing their assets as if interest rates were going to be at 3%, and buyers are having to underwrite using current interest rates. There are still good deals out there, but the ones that I know about aren’t taking any chances.

Good luck!

Edgar Gascon · Answer

I think you just mentioned a few of those reasons to find “great deals”.

As a realtor, I see a lot of buyers move into multi units with the idea of utilizing those rents to help with the mortgage payments - which allow owner occupants to bid higher than an investor with capped numbers focusing on specific returns.

G. Brian Davis · Answer

Hi @Dalton Mongold, we do multifamily through our co investing club, so it’s a bit different, but we’ve definitely seen the same challenges. The biggest issue lately seems to be sellers still anchored to old pricing while buyers are dealing with much higher financing costs and more conservative underwriting. We’re also seeing timeline risk matter a lot more now. If renovations, lease-ups, or refinances take longer than expected, the numbers can change quickly. We spend a lot of time stress testing assumptions around debt, occupancy, exit caps, and timelines before participating in any deal.

Charley C. · Answer

Let me give some insight into how experienced owners think in this market:

• I understand the upside I may be walking away from. I’m in my 60s now — there comes a point where you want to travel and enjoy life a little. That said, I’m not under pressure to sell either. If Class A assets with high-FICO tenants were trading at 5% caps a few years ago, maybe today I get 6%. I can live with that.
• 
• Higher interest rates mean much higher down payments. To hit a 1.25 debt coverage ratio at today’s 6.5% rates, buyers may need to put 50% down instead of 20–25% like they did when money was 2–3%. Yes, you can still find higher returns in more volatile or less desirable asset classes, but for stabilized Class A properties with tenant credit profiles stronger than many mortgage portfolios? Not so much.
• 
• I’m realistic. I know I may have to accept a 6% cap if I want to sell before oil prices fall and interest rates eventually come back down. It would not take much — one major producer like Russia or Iran fully returning to world markets could create an oil glut, especially with Texas and Venezuela already increasing production.
• 
• For me (or any developer) to cross-collateralize and build more apartments, my one-bedroom units would need to rent 1 beds for at least $1,600/month. Right now, they’re getting $1,050–$1,350. Why is that metric so important? Because my niche market is steady and continues to grow slowly, but no rational developer is going to spec-build significant new inventory until rents justify construction costs. And by the time that happens, construction costs may require rents closer to $1,700/month anyway.

That creates a very real built-in upside over time. I’ve seen this cycle before. It usually takes 3–5 years to fully play out.

Brian Tulibaski · Answer

In Fargo, North Dakota and across parts of Minnesota, the biggest challenge in small multifamily today is the disconnect between seller expectations and the cost of capital.

Many owners are still looking at values through the lens of the low interest rate environment from a few years ago. But buyers today are dealing with a very different reality. Insurance costs are higher. Payroll is higher. Maintenance costs are higher. Interest rates are higher. Even basic service calls have changed dramatically. It is difficult to get a plumber to show up at a property for under $300 anymore.

Financing has also become much more restrictive. In many cases, banks want buyers bringing thirty to forty percent down in order for the deal to satisfy debt coverage requirements. That changes the entire equation, especially on five to twenty unit properties where margins are already tight.

Stepping back, this is what nearly $39 trillion in national debt and years of artificially cheap money eventually lead to. Capital becomes defensive. Lenders tighten up. Investors stop underwriting appreciation and start focusing on durability, cash flow, and downside protection.

That does not mean opportunities are gone. It just means discipline matters again.

The deals still moving in North Dakota and Minnesota tend to involve realistic sellers, operational upside, or creative structures like seller financing. The easy deals disappeared a while ago. Today, patience and careful underwriting are far more important than chasing volume.

Brian Tulibaski, Fargo Commercial Realtor

Greg Kasmer · Answer

@Dalton Mongold - One of the areas I'm seeing is that sellers are advertising a relatively high cap rate, but then in their P&L are excluding several typically expenses - so essentially artificially inflating their stated cap rate.

What’s Been the Biggest Challenge Finding Multifamily Deals Lately?

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