Mini Breakdown | Are These Multifamily Deals Actually Profitable?

Craig opens by noting a clear shift in the market. More single-family investors are now looking at small to mid-sized multifamily deals. That interest is not random. According to Jack, pricing has started to reset, and that reset is creating better opportunities than the market has offered in years.

He explains that many multifamily syndications from the last cycle are now under pressure. As capital has tightened, buyers have stepped back and cap rates have expanded. As a result, deals in the sub-institutional space, especially B and C assets, look more attractive than they did just a few years ago.

Better Opportunities Do Not Always Mean Better Underwriting

Even so, Jack makes one point very clear: a cheaper deal does not automatically make it a good deal. He says many borrowers still bring in pro formas that fail to reflect how these properties actually operate. Some investors are new to multifamily. Others know how to make a spreadsheet look convincing. However, neither group can escape poor assumptions forever.

That is where the real risk shows up. Jack argues that the biggest mistakes usually come from expense underwriting, not from the rent-growth story. Investors may debate renovation upside, but operating expenses leave far less room for fantasy.

Expense Ratios Tell the Real Story

Jack focuses on one major issue throughout the conversation: investors often underestimate expenses on lower-rent multifamily properties. He explains that when rents stay under $1,000 per unit, the expense ratio usually rises. Toilets, paint, trash removal, snow removal, and maintenance still cost what they cost. Therefore, lower rents leave less margin to absorb those fixed costs.

In his view, many of these assets operate with expense ratios closer to 50% to 65% before debt service. That reality matters. If an investor underwrites a much lower ratio, the deal may look profitable on paper while falling apart in practice.

Bad Debt, Vacancy, and Taxes Deserve Closer Scrutiny

Jack also points to several line items that often get understated. Bad debt is one of the most common misses. Tenant quality, screening standards, and property management discipline can all change collections dramatically, even within the same neighborhood.

Likewise, vacancy should never sit in a spreadsheet as a guess. Jack explains that vacancy comes from turnover time, lease-up time, and average tenancy duration. In other words, it should come from an operating plan, not from a random percentage.

Property taxes also create trouble. Investors often assume taxes will stay flat after a value-add project. Jack pushes back on that logic. If a buyer improves the property and raises value, then taxes may rise as well. Ignoring that possibility can distort the entire deal.

The Multifamily Sponsorship Question Still Matters

Beyond the numbers, the episode also touches on incentives. Jack warns that some sponsors still earn fees even when the deal underperforms for investors. Acquisition fees, management fees, and promote structures can protect the general partner while leaving limited partners exposed. Accordingly, strong underwriting still matters as much as ever. A polished deck cannot fix a weak business plan.

Final Takeaway

This episode makes one thing clear: small to mid-sized multifamily may offer real opportunity, but only if investors underwrite with discipline. The market has changed, and pricing may finally make more sense. However, investors who repeat old assumptions could end up making the same old mistakes.

For anyone exploring this space, the real question is not whether multifamily looks cheaper today. The real question is whether the deal actually works once the numbers reflect reality.