Investing in multifamily real estate is one of the most rewarding paths to financial freedom—but it’s not without its challenges. As someone who has been in the multifamily game for years, I’ve experienced the highs of successful deals and the gut-wrenching lows of costly mistakes. This post is all about helping you avoid those pitfalls by sharing the lessons I’ve learned firsthand.
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The Emotional Trap: Numbers Don’t Lie
One of the biggest mistakes investors make is getting emotionally attached to a deal. It’s tempting to fall in love with a property because of its location, aesthetics, or potential, but multifamily real estate isn’t about personal preferences—it’s about math.
Does the deal make sense on paper? If the numbers don’t add up, walk away. Your emotions have no place in underwriting. Stick to the data, and let the math guide your decisions.
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Underestimating Expenses: A Costly Oversight
Another common pitfall is underestimating operating expenses. Taxes, insurance, and maintenance costs are often underestimated by new investors—and I’ve been guilty of this myself. Here’s what you need to know:
1. Taxes: Property taxes often get reassessed upon purchase, sometimes increasing significantly. Always call the local municipality to get an accurate projection.
2. Insurance: Rising premiums, especially in areas prone to natural disasters, can eat into your cash flow. Overestimate these costs to avoid surprises.
3. Maintenance: Routine upkeep can quickly add up. Plan for realistic annual costs per unit, and don’t forget to account for capital expenditures (CapEx).
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Due Diligence: Non-Negotiable
Skipping or rushing due diligence is a surefire way to end up in financial trouble. During your due diligence period, thoroughly inspect the property, audit leases, and verify all financials. Pay close attention to red flags like high water bills (which could signal leaks) or discrepancies in the T12 financial report.
One of my biggest losses—a $60,000 hit—stemmed from inadequate preparation and relying too heavily on one lender. Don’t make that mistake. Double-check everything, ask questions, and don’t be afraid to bring in professionals for inspections.
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Building the Right Team
Multifamily investing is a team sport, and having the right people in your corner can make or break your success. Here are some essential roles to fill:
– Asset Manager: Oversees the day-to-day operations and ensures the property is meeting performance goals.
– Property Manager: Handles tenant relations, maintenance, and rent collection.
– Underwriter: Analyzes deals and runs the numbers to ensure they meet your criteria.
– CapEx Expert: Manages renovations and ensures your improvement projects stay on budget.
If you don’t have all these skills yourself, partner with people who do. A strong team reduces risk and increases your chances of success.
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Start Small, Scale Smart
It’s okay to start small. In fact, it’s often the smartest way to begin your multifamily journey. A smaller property allows you to gain hands-on experience, learn the ropes, and build confidence. Don’t rush into syndicating a 100-unit property without first understanding the basics.
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The Bottom Line
Multifamily investing is a powerful wealth-building strategy, but it’s not without its challenges. By avoiding emotional decisions, underestimating expenses, or rushing through due diligence, you’ll set yourself up for success. Surround yourself with the right team, start small, and approach every deal with discipline.
If you’re feeling overwhelmed or unsure about any of this, I’m here to help. Whether it’s analyzing a deal, building a team, or avoiding costly mistakes, I’ve got your back. Let’s sharpen those axes together and build something extraordinary.
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Need Help?
Visit [Small Axe Communities](https://www.smallaxecommunities.com) for more resources, tools, and guidance. From underwriting templates to coaching, I’m here to help you every step of the way. Let’s get to work!
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*Have you made mistakes in your investing journey? Share your experiences in the comments below—I’d love to hear your story and help you find solutions!*
