Multifamily Investors: What Expense Did You Underestimate on Your First 5+ Unit Deal?

Question

One thing I see when looking at multifamily opportunities is how easy it can be to get excited about the gross rental income before really digging into what happens between gross rents and NOI.

Once you start accounting for things like:

• Vacancy and credit loss
• Property taxes
• Insurance
• Repairs and maintenance
• Property management
• Utilities
• Landscaping/pest control
• Turnover costs
• Replacement reserves
• Other recurring operating expenses

…the deal can look very different.

And from the lending side, that matters because the NOI ultimately plays a major role in determining how much debt the property can support.

A property can have great rents and still struggle to support the expected financing if the operating expenses were underestimated.

So I’m curious for those who own 5+ unit multifamily properties:

What expense surprised you the most on your first property?

And is there an expense you see newer investors consistently underestimate when they're analyzing a deal?

I think hearing actual owner experiences would be incredibly helpful for people making the jump from 1–4 units into commercial multifamily.

Claudia Rodriguez · Answer

Jonathan — that's a great add, and it's basically the same problem showing up in two different departments. Turnover killing your PM partners' occupancy at night is the same root cause that shows up as a thin reserve line on my side when I'm underwriting a refi or acquisition. Always happy to compare notes — feel free to connect, would be good to hear what you're seeing on the ground with your investor partners.

Jonathan Greer · Answer

Hi Claudia,

Great question! As a BDM for a property management company, I have found that turnover costs and vacancies keep my investor partners up at night. I hear time after time that keeping their house (or rooms if you explore Co-Living rentals) full of renters can be a full time headache and drain the bank accounts. Would love to discuss further and get your take on the subject and learn from your experience. Let's connect!

Claudia Rodriguez · Answer

Brian — pulling actual utility and repair bills instead of trusting the OM is the single best habit you listed. From the lending side, a thin or missing reserve line is one of the fastest ways a deal that looked fine on paper turns marginal once we run it — it's not just an operating-expense line, it directly affects how much debt the NOI can actually support. Turnover cost is the one newer buyers seem to miss most often, probably because it's lumpy instead of a clean monthly number, so it's easy to leave out of a first pro forma entirely.

G. Brian Davis · Answer

Hi @Claudia Rodriguez, the expense that catches almost everyone off guard is turnover cost, painting, flooring, and make ready work between tenants, especially on older buildings where you inherit deferred maintenance you didn't budget for. Replacement reserves get skipped too, roofs and HVAC don't care about your pro forma. I'd underwrite with a real reserve line and pull actual utility and repair bills from the seller rather than trusting the offering memo. When I look at deals now through my co-investing club, that reserve line is one of the first things we push back on.