What’s the Most Overlooked Risk in Multifamily?

Question

When people evaluate multifamily deals, the conversation usually revolves around cap rates, cash flow, and financing.

But in your experience, what's the most overlooked risk that newer investors don't think enough about?

Could be:• deferred maintenance• tenant quality• insurance costs• local regulations• management issues• utility expenses• market changes• something else entirely

I'm interested to hear what risks have surprised experienced investors the most and how you account for them before buying.

Justin Blankenship · Answer

A lot of newer investors look at these risks separately, but the bigger issue is how quickly they can stack on top of each other.

Having owned a property management company, I tend to look at the expense side carefully. A deal can look solid on paper when the rent roll and cap rate are the focus, but the margin can change quickly if a tax reassessment, an insurance renewal and a few major repairs all show up in the same cycle.

Insurance is a good example because those costs have moved quickly in the multifamily market. Older underwriting assumptions may not fully reflect what owners are paying now, especially on properties with age, deferred maintenance or location-specific risk.

Before buying, I would want to see more than the current expense history. I would want to know what taxes may look like after reassessment, what the insurance renewal could realistically become, and how much capital the property may need in the first few years. That is usually where the thin deals reveal themselves.

Stacy Raskin · Answer

On the financing side, important to remember that after getting out the 1-4 unit category for non owner occupied investment properties, generally the financing terms will have lower LTVs and more rigorous underwriting compared to a non owner occupied 1-4 unit rental property. The options will also vary based on the borrower's credit score and property location.

Pierre Guirguis · Answer

Taxes and insurance, and reassessment is the part people miss. Most newer investors copy the seller's tax bill straight into their model, but plenty of towns reassess at your purchase price after closing, so taxes can jump hard in year one. Insurance is the same trap, premiums have spiked and older buildings get quoted brutally. What ties them together is they're the two expenses most likely to look totally different for you than they did for the seller. You should pull real quotes for both before you fall in love with a deal, not after.

I'm on the financing side and I see deals get repriced once those come in higher than projected. They are definitely worth stress testing up front

Jules Aton · Answer

My long term hesitation with multifamily although now it seems to be the sought after darling is ease of resale. In my mind these things require a specific buyer and that narrows down the pool significantly although unless as I noted earlier this continues to be a hot strategy.

Adam Tafel · Answer

Turnover costs, refinance options

Caleb Brown · Answer

Deferred maintenance and multiple repairs needed. On a single family you have 1 for each mechanical, multifamily it's multiplied. I see distress situations when multiple mechanicals go out and they can't keep up. Same with maintenance items. All about having adequate reserves

Percy N. · Answer

In some markets, property taxes skyrocketed.

For one of our properties in AL the property taxes went from $260K or almost $510K in 2 years.

What’s the Most Overlooked Risk in Multifamily?

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