What’s One Thing You Wish You Knew Before Buying Your First Small Multifamily?

Question

I’ve been spending more time studying small multifamily lately and one thing I’m realizing is how much of this business comes down to experience and relationships.

For those who have already bought 5–20 unit properties:

What’s one thing you wish you understood before your first deal?

Could be:• underwriting• financing• property management• renovations• tenant issues• partnerships• anything else that caught you off guard

Always interesting hearing what actually matters in the real world versus what gets talked about online.

Pete Langford · Answer

Insurance on older buildings. I modeled it as a number on a spreadsheet and figured it would be close enough. Then the insurer actually walked one of my fourplexes and found knob-and-tube remnants in the walls, flagged the roof age, and the quote came back way higher than I budgeted. That was year one. It went up again the next year, and the year after that. Milwaukee is all 1920s building stock and the insurers know it. Every renewal they find something new to charge you for. If I was starting over I'd get actual insurance quotes before making an offer, not after.

Tom Arrington · Answer

Dalton, There are so many good ones you mentioned. Underwriting and keeping to specific parameters (think Buy Box) and renovation over runs (time and materials). I'm still of the old school feels and looks good deal, which has cost me much in overspending over the years.

There is still hope for me to learn new tricks which I have been studying many of the guru's out there, spending a little money for education BUT not buying into these outrageously priced mentoring programs.

G. Brian Davis · Answer

One thing I wish I had understood earlier is how important operations are after closing.

A lot of attention is paid to finding the deal, negotiating the purchase, and arranging financing. But long-term performance often comes down to how well the property is managed, how quickly problems are addressed, and how effectively the business plan is executed.

I've seen average deals perform very well because they were managed properly, and I've seen strong acquisitions underperform because operations fell apart after closing.

Stacy Conkey · Answer

Mine is less tactical than most of what's in this thread, and I'd give up a lot of the tactical stuff to have known it sooner: I wish somebody had told me it's messy, and that as a real estate investor you are a "Highly Paid Problem Solver".

Every deal has problems, not just the "bad ones". All of them. I didn't work that out until I was somewhere around fifteen deals in, when I finally noticed that the pattern I kept treating as bad luck was the pattern. Before that, every time a deal went sideways I took it as evidence I'd made a mistake somewhere upstream, that a better investor would have caught it, that I wasn't cut out for this. What was actually happening was real estate behaving exactly like real estate.

Some of my own, so this isn't abstract.

As a rookie I brought $6,000 to a closing that was supposed to be no money down, because the seller told me he'd refund it out of proceeds. He did. It worked out fine, which is the worst possible outcome for a lesson like that, because I didn't stop making trust-based moves until a few of them burned me properly. We don't do trust in real estate. We do paperwork, escrows, and lawyers.

I rented four units in December once and wrote all four on twelve month leases, which meant all four came due the following December, which is the deadest month of the year to fill a vacancy. Nobody warned me about the calendar. Now I write winter move-ins at fourteen or fifteen months so renewals land in spring.

January 2019, a polar vortex hit and my partner and I ate $25,000 in repairs across the portfolio in a single month. Part of it was a roof we'd missed during rehab because it was under snow when we walked it. We paid it out of reserves and chose not to file, because claims follow you into your future insurability. That month is the reason I don't live off cash flow.

None of those were failures of analysis. They were the business.

What changed for me was reframing the job itself. You don't get paid because you're a real estate investor. Real estate is the product. You get paid because when something goes sideways at nine at night in a state you've never been to, you'll get on the phone, ask the annoying question, and find the solution. That's the actual skill, and once I understood that, the problems stopped feeling like verdicts on whether I belonged here.

The practical version, since you asked what to do with it: build reserves you'd be embarrassed to admit are that large, and write down every single thing that goes wrong. My due diligence checklists exist entirely because of things I forgot on earlier deals. Every line on them is scar tissue. That's the only system that compounds properly, because your problems will keep being new and your checklist will keep getting longer.

The next time a deal seems like it's coming apart, say it out loud: this is the part I get paid for, and I am a highly paid problem solver. A deal in crisis usually still has a heartbeat, and everyone in the chain only gets paid if it closes.

Greg Kasmer · Answer

@Dalton Mongold - In addition to the building, you're "buying the leases" (so to speak) with smaller multifamily properties. The leases are one document, but understanding the backgrounds of the tenants and their income dynamics/situations are important. If you're not expecting a lot of turnover, but then have several tenants not renew it can send you for a tailspin. Count on some turnover, but have a lease up strategy in case you face more than you anticipate. Good Luck!

Russell Cabus · Answer

Great point, Greg! Especially about being prepared for more turnover than expected. I’d add that having a solid system in place for tenant screening and lease-up can make that situation a lot easier to manage.Keeping applications and applicant information organized digitally, screening consistently, and being able to compare applicants side by side can save a lot of time when you suddenly have multiple vacancies to fill. It also helps you make more informed decisions instead of rushing just to get the units occupied.Definitely one of those processes that’s better to have figured out before you need it.

Claudia Rodriguez · Answer

From the lending side, one thing I wish more investors understood early is that a great purchase price doesn’t automatically mean the property will support the financing you’re expecting.

Once you move into 5+ units, NOI and DSCR become incredibly important. Taxes, insurance, vacancy, management, repairs and other operating expenses can materially change how much debt the property can actually support.

I’d also recommend talking with a lender before you’re under contract, not after. Understanding the likely financing structure, required liquidity, documentation and how the property will be underwritten can help you establish a much better buy box.

Sometimes the best question isn’t simply, “Is this a good deal?” It’s “Is this a good deal that can actually be financed the way I’m modeling it?”

That distinction can save a lot of time.

Giuseppe Cavucci · Answer

Pete's insurance story is a good example of a broader pattern: underwriting an older building on paper without knowing what's actually in the walls. Same thing happens with maintenance reserves, a lot of first-time small multifamily buyers model a reserve as a flat percentage during underwriting, then find out post-close that half the systems are original to a 1920s build and the real number is way higher than what was modeled.

If I were adding one line to Dalton's list, it'd be: get real inspection detail (not just a general inspection) on major systems before you finalize the number you're underwriting to, roof age, wiring, plumbing material, same idea as Pete getting actual insurance quotes instead of guessing. The gap between modeled and real tends to be biggest exactly on the older buildings where the deal looked good on a spreadsheet.

Jon Hinkle · Answer

How about completing a property check-in after purchase and finding that a tenant had passed away in their unit?  That was a bit wild, and sad. It’s also amazing how creative tenants can be in their attempts to avoid paying what they owe. Establishing a solid screening process helps to avoid most scammers and once in place you find most tenants are great at fulfilling their obligations, until then, be aware of those looking to take advantage of you.

What’s One Thing You Wish You Knew Before Buying Your First Small Multifamily?

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