What’s One Expense New Multifamily Investors Commonly Underestimate?

Question

The more multifamily deals I look at, the more I realize how easy it is for numbers to change quickly depending on expenses.

Curious from those with experience in the space:

What’s one expense you think newer multifamily investors tend to underestimate the most?

• maintenance• insurance• taxes• vacancy• capital expenditures• property management• renovations• something else?

Seems like a lot of deals can look great upfront until the true operating costs start showing up.

Charles Seaman · Answer

@Dalton Mongold Property taxes are definitely the expense that newer multifamily investors underestimate the most.  This happens because they try to apply a general rule of thumb.  It's very difficult to do this with property taxes because the methodology varies so much from county to county.

G. Brian Davis · Answer

From what we’ve seen reviewing deals in my co investing club, newer investors often underestimate the combination of CapEx, insurance, and timeline risk together. A renovation that takes longer than expected while insurance, taxes, and interest costs keep running can change a deal very quickly.

Ryan Rodriguez · Answer

I think cap-ex needs and vacancy cost. Value add deals are typically dependent on rent growth and turnover. It's great to get the increase in rents when the units turn, but turning them quickly and under budget are key.

Greg Kasmer · Answer

@Dalton Mongold - I think with value add multifamily projects that require renovations I think the timing/schedule of renovations and the impact on the vacancy period is underestimated often. OMs from most brokers will show market rates from "Day 1" despite needing improvements over time as well as the time to re-lease and fill vacancies. Good Luck!

What’s One Expense New Multifamily Investors Commonly Underestimate?

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