Multifamily investing is all about the numbers, but focusing only on the upside can be a costly mistake.
Too many investors get excited about projected cash flow, appreciation, and investor returns without fully accounting for the potential risks that could derail a deal.
And when the unexpected happens? They’re caught off guard.
What You Don’t See Can Hurt You
Every real estate deal comes with risk. The goal isn’t to eliminate risk—it’s to understand it, plan for it, and mitigate it before you close.
Here are four common risk factors many investors fail to analyze thoroughly:
1. Interest Rate Fluctuations
Can your deal still work if interest rates increase before closing? Even a small bump in rates can throw off your debt service and cash flow. Are you locking rates or building in a buffer?
2. Rent Growth Assumptions
Are you assuming consistent rent increases year over year? Unless your projections are based on real market data and comparable properties, you might be overestimating your income potential.
3. Insurance & Property Tax Increases
Rising insurance premiums and tax reassessments are becoming more common. If you’re not forecasting these increases, they can quickly eat into your NOI.
4. Exit Strategy Risks
What happens if cap rates shift by 50–100 basis points? Will your exit valuation still support your targeted IRR or equity multiple?
Failing to plan for these scenarios can turn a promising investment into a financial burden.
Smart Investors Stress-Test Every Deal
Savvy underwriters know that real-world results rarely match best-case scenarios. That’s why they stress-test every deal before moving forward. Here’s how:
Run the Worst-Case Scenario
What if rent growth is flat? What if your vacancy spikes or expenses rise by 10%? Can the deal still support itself?
Have a Backup Plan
Do you have flexible financing? Can you refinance or hold longer if the market shifts? Are you prepared to pivot if your original exit timeline no longer makes sense?
Get Outside Input
Don’t make assumptions in a vacuum. Talk to lenders, property managers, insurance brokers, and local market experts. They’ll often catch things you won’t.
The Bottom Line: Mitigate Risk Before It Becomes a Problem
You don’t need to fear risk, but you do need to respect it.
The difference between a deal that performs and one that flops often comes down to how thoroughly you’ve assessed and prepared for potential challenges.
If your underwriting doesn’t include a deep look at risk, you’re not seeing the whole picture.
