What’s One Thing You’ve Become Much More Conservative About in Today’s Market?

Question

Seems like a lot of multifamily investors have adjusted the way they evaluate deals compared to a few years ago.

Curious what experienced operators have become more conservative on recently:
• underwriting rents?
• exit cap assumptions?
• leverage/debt?
• renovation budgets?
• reserves?
• occupancy assumptions?
• market selection?

Feels like the investors who are still finding success today are being a lot more disciplined than during the easier money years.

Would be interested hearing what has changed most in your approach recently.

Denise Supplee · Answer

One thing I've noticed is that many investors have become more conservative across the board, but especially when it comes to rent growth assumptions, renovation costs, and reserves.

Through the co-investing club I help run, we've reviewed opportunities in a variety of market conditions, and I've found that the strongest operators tend to leave themselves room for the unexpected. They don't assume everything will go according to plan. If anything has changed in recent years, it may be the importance of stress-testing a deal and asking, "What happens if things take longer, cost more, or grow more slowly than expected?"

Greg Kasmer · Answer

@Dalton Mongold - I've been very conservative with rent increases in today's market. There are a variety of factors affecting rent increases, but definitely stress testing no/limited increases in rent just in case.