8 Common Mistakes Investors Make When Evaluating Multi-Family Properties
This post is written by Trusted Partner, Keith Uthe – Enrich Mortgage Group. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.
As part of our multifamily real estate coaching and mortgage advisory work, we review many deals each year with investors. This hands-on experience provides a unique perspective on the most common mistakes made when underwriting the potential cash flow of a multifamily property.
Whether you are a first-time investor or an experienced property owner expanding your portfolio, these eight mistakes can cost you valuable time, money, and opportunities. Understanding them — and knowing how to avoid them — will help you make smarter investment decisions and ensure your financing strategy aligns with your long-term wealth goals.
Mistake No. 1: Overestimating Market Rental Rates and Rental Growth
A common belief among investors is that below-market rents can easily be brought up to market levels through renovations or management improvements. While this can be true, it’s also where overconfidence often leads to trouble.
Many investors make two major miscalculations:
- They overestimate post-renovation rents. Achieving “market rent” requires more than fresh paint and new flooring. To truly compete, you must compare your property’s location, finishes, amenities, parking, and unit layouts against similar buildings in the area.
- They assume steady rent growth. Rent increases rarely happen in a straight line. Market slowdowns, local job losses, or increased supply can flatten or even reduce rents for periods of time.
I often advise, “Your numbers should be data-driven, not hope-driven.” Verify every rent assumption with current market comparable and conservative projections.
Mistake No. 2: Underestimating Operating Expenses
A property’s Net Operating Income (NOI) determines both its value and its financing potential. If you underestimate expenses, your entire valuation and cash flow model can crumble.
Many investors “estimate” costs such as utilities, insurance, or property management rather than referencing the property’s actual financial performance. This can lead to serious shortfalls, especially when expenses spike unexpectedly. I often help lower expenses for clients by introducing them to my trusted partners that provide services that target lowering expenses. Lower expenses typically increase the value of commercial property.
Another standard error involves property taxes. When a property is sold, it’s often reassessed based on the new purchase price, which can cause taxes to rise substantially. Investors who assume the previous owner’s tax rate will continue are setting themselves up for a surprise.
My advice: “Ask for at least two years of actual expense data, verify tax projections with the local municipality, and always round expenses up — not down.”
Mistake No. 3: Underestimating Repair and Renovation Costs
In a value-add investment strategy, your renovation budget determines the deal’s profitability. Unfortunately, many investors underestimate both the cost and timeline of their improvements.
Always engage an experienced contractor or construction manager to prepare estimates — don’t rely solely on online calculators or personal guesses. Include at least a 10% contingency fund to account for cost overruns, hidden damage, or delays.
I encourage investors to connect with reliable contractors and building consultants early. “As a mortgage strategist, I often see financing issues caused by unrealistic renovation budgets. Lenders will scrutinize your numbers — and so should you.”
Mistake No. 4: Not Reviewing the Rent Roll in Detail
The rent roll isn’t just a list of rents — it’s a roadmap of tenant stability and future income. Failing to analyze it closely can lead to major problems after purchase.
If a significant number of leases expire in the same month, you risk multiple vacancies and temporary loss of income. This “lease stacking” can cause a sudden drop in cash flow, potentially affecting your ability to cover mortgage payments.
Before finalizing your offer, review the rent roll for lease expirations, delinquent tenants, and upcoming renewals. Consider staggering lease expirations to smooth income flow over the year.
Mistake No. 5: Not Stress Testing the Pro Forma
A pro forma is simply a projection — not a guarantee. Many investors fall into the trap of believing their spreadsheet is reality.
Stress testing means adjusting key variables — vacancy rates, rental growth, repair costs, and financing terms — to see how the investment performs under less favorable conditions.
For example:
- What happens if vacancy rises from 5% to 10%?
- How would a 1% interest rate increase affect your cash flow?
- What if renovation costs go 15% over budget?
I teach clients to use these “what-if” scenarios as a form of financial due diligence. “If your deal only works under perfect conditions, it’s not a deal — it’s a gamble.”
Mistake No. 6: Choosing the Wrong Financing Structure
Many investors focus on the property and forget that a financing strategy is part of the investment’s success. The proper mortgage structure can protect your cash flow, reduce risk, and even improve returns over time.
Common financing mistakes include:
- Using short-term loans for long-term holds.
- Ignoring prepayment penalties or renewal conditions.
- Assuming future refinancing will be easy or cheap.
As a licensed mortgage broker with Enrich Mortgage Group, I help investors structure financing to fit their goals — not the other way around. Whether you’re planning a short-term repositioning or a long-term hold, your mortgage term, amortization, and rate type (fixed or variable) must align with your business plan.
Mistake No. 7: Failing to Account for Management and Operational Complexity
Managing a multifamily property is not like managing a single-family home. The scale, tenant diversity, maintenance needs, and compliance requirements multiply quickly.
Investors who try to self-manage large buildings without proper systems or support often find themselves overwhelmed, and performance suffers.
I often connect my clients with trusted property managers and advisors who understand both operational efficiency and long-term asset preservation. “Real wealth in multifamily isn’t just built by buying — it’s sustained by managing well,” he reminds investors.
Mistake No. 8: Ignoring Exit Strategy and Long-Term Wealth Planning
Many investors enter a deal with the sole focus on acquisition, without considering how or when they’ll exit. Will you sell, refinance, or hold indefinitely? How will market conditions, capital gains taxes, or future interest rates affect that decision?
A well-defined exit strategy should be part of your underwriting from day one.
I integrate this perspective into my clients’ wealth planning process. “Every mortgage, every property, and every decision should connect back to your long-term goals — financial freedom, portfolio growth, or intergenerational wealth.”
By aligning your financing and ownership strategy with your plans, you ensure the investment supports your broader wealth-building objectives rather than restricting them.
Final Thoughts
Evaluating a multifamily property is both an art and a science. It requires data, discipline, and the right team of professionals to guide the process.
At Enrich Mortgage Group, Keith Uthe helps investors go beyond the numbers — to think strategically about financing, risk management, and long-term opportunity. Avoiding these eight common mistakes won’t guarantee success, but it will dramatically increase your confidence and clarity when evaluating your next investment.
Thinking about buying or refinancing a multifamily property?
Let’s talk strategy before you make your next move. A well-structured financing plan can turn a good investment into a great one.
Book A Discovery Call: https://calendly.com/keithuthemortgages
Website: www.demystifyingmortgages.com
Email: keith@enrichmortgage.ca
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