If you’re considering investing in a multifamily deal—especially a syndicated one—the numbers might look good, the pictures might look even better, but your job as an investor is to see what’s hidden behind the gloss.
Here are 4 critical red flags every investor must watch for before committing capital.
🚩 1. Unrealistic Rent Growth Projections
You see it all the time—pro formas showing 25–30% rent increases in the first year. But when market data shows local rents growing 3–4% annually, that’s a major disconnect.
🧠 What to check:
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Look up local market trends (Zillow, Apartments.com, CoStar)
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Compare projected rents to existing comparable units
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Ask: What specific improvements justify the increase?
🚩 2. Weak or Misleading Comps
Bad comps can make a mediocre deal look like a home run.
Some sponsors cherry-pick properties from better areas or higher-end classes just to justify inflated pricing or rent targets.
🧠 What to check:
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Are comps in the same zip code or neighbourhood?
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Are they similar in unit size, amenities, and age?
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Were they recently leased?
🚩 3. Over-Leveraged Capital Stack
Too much debt = too much risk. If the deal relies on high LTV (loan-to-value) or interest-only loans, one dip in occupancy or rent collections can wreck returns—or even lead to default.
🧠 What to check:
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Is the debt over 75–80% LTV?
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What’s the debt service coverage ratio (DSCR)?
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Is there a plan for rising interest rates?
🚩 4. Lack of Sponsor Experience
A multifamily deal is only as strong as the team behind it. New investors might mean well, but experience matters when managing a multi-million-dollar asset.
🧠 What to check:
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Has the sponsor led similar deals before?
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Ask for a track record: past deals, exits, and current occupancy
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Who is the property management company?
🧭 Final Thought
Multifamily investing can absolutely build long-term wealth. But if you ignore these red flags, you’re not investing—you’re gambling.
Do your due diligence, ask tough questions, and always verify the story behind the spreadsheet.
