How Investors Lose Money in Multifamily, Ep. 776

In this solo episode, we break down the most common ways investors lose money in apartment investing. And, more importantly, how to avoid them. While multifamily is a powerful wealth-building vehicle, it’s not foolproof. We walk through real-world examples from my own portfolio to highlight where deals go wrong, from negative cash flow and over-leverage to bad partners and poor business planning. This episode is a practical guide for investors who want to protect capital, reduce risk, and build durable multifamily portfolios.

 

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Make sure to download our free guide, 7 Questions Every Passive Investor Should Ask, here.

 

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Key Takeaways

• Understand how negative cash flow quietly erodes deals over time

• Learn why conservative underwriting matters more than optimistic projections

• See how improper insurance coverage can magnify catastrophic losses

• Recognize how leverage, partners, and market selection impact long-term outcomes

 

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Topics

Negative Cash Flow and Poor Underwriting

• Cash flow equals income minus expenses, debt service, and CapEx

• Renovations, rising expenses, and miscalculations can quickly create losses

• Trailing 12-month statements often understate true operating costs

• Investors must model realistic expenses and conservative income assumptions

Catastrophic Events and Insurance Coverage

• Fires, storms, and other disasters can shut down buildings for months

• Insurance must cover both property damage and lost business income

• Understanding deductibles, exclusions, and coverage details is critical

• Proper insurance makes unavoidable events survivable from a business standpoint

Over-Leverage and Loan Risk

• High loan-to-value ratios reduce flexibility during refinancing or sale

• Properties that fail to create value can become impossible to exit

• Conservative leverage (around 65% LTV or lower) preserves options

• Loans must match the business plan and hold strategy

Bad Partners and Weak Teams

• Poor property managers, contractors, or partners can destroy deals

• Fraud, negligence, or lack of accountability creates hidden risk

• Due diligence, references, and checks and balances are essential

• Quality partners cost more, but reduce long-term losses

Market Selection and Long-Term Growth

• Cash-flow-only markets may lack appreciation

• Aging properties require reinvestment over time

• Markets and submarkets must support long-term value growth

• Cheap properties without upside can become capital traps

Over-Improving and Flawed Business Plans

• Renovations must align with market rent ceilings

• Over-improving units doesn’t guarantee higher returns

• Class B and C properties have natural rent limits

• Staying disciplined with budgets and numbers protects returns

 

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📢 Announcement: Learn about our Apartment Investing Mastermind here.

 

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Next Steps

• Stress-test cash flow assumptions with conservative expense models

• Review insurance policies to confirm full loss-of-income coverage

• Reevaluate leverage levels and loan terms before committing capital

• Vet partners, vendors, and markets with the same rigor as the deal

 

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Thank you for joining us for another great episode! If you’re enjoying the show, please LEAVE A RATING OR REVIEW, and be sure to hit that subscribe button so you don’t miss an episode.