Top 3 Multifamily Investing Mistakes to Avoid as a Beginner

When starting out in multifamily real estate, the excitement of closing your first deal can be immense. But, as with any investment, it’s crucial to navigate carefully, especially in an area as detail-sensitive as multifamily real estate. As an investor with a background in accounting and management, I learned early on that mistakes can be costly, both financially and in terms of time. Here are the top three mistakes to avoid if you’re considering multifamily investing, along with practical advice to set you on the right path.

1. Underestimating Renovation and Maintenance Costs

One of the biggest mistakes new multifamily investors make is underestimating the cost of renovations and ongoing maintenance. Unlike single-family homes, multifamily properties have multiple units, which means more elements that may need repairs or upgrades. According to the National Association of Home Builders, multifamily buildings are more likely to incur frequent maintenance, especially in older properties that may need electrical, plumbing, and roof repairs (NAHB, 2023).

In one of my first multifamily projects, I bought a four-unit property in need of some serious TLC. I estimated a renovation budget, but the costs quickly added up as I discovered issues hidden beneath the surface—outdated wiring, deteriorated plumbing, and structural fixes that weren’t visible during initial inspections. To avoid this pitfall, I always recommend conducting a thorough inspection with a reliable contractor and building a budget that accounts for at least a 10-15% contingency. It’s better to overestimate than to find yourself needing to scramble for extra funds mid-renovation.

2. Failing to Account for Vacancy and Turnover Rates

Vacancy and tenant turnover can significantly impact cash flow, yet many new investors overlook these factors. For instance, it’s common to expect steady rent from all units without factoring in the natural ebb and flow of tenant turnover. According to Zillow’s 2023 Rental Market Report, the national rental vacancy rate hovers around 6.4% (Zillow, 2023). For multifamily properties, higher turnover can mean frequent unit refurbishments, marketing for new tenants, and potential vacancy periods.

From my own experience, an average multifamily unit may require at least a couple of weeks for refurbishments between tenants, especially if you’re aiming for higher-quality tenants. By factoring in vacancy rates from the start, you’ll have a more accurate projection of cash flow and can prepare financially for those empty months. Setting aside a “vacancy reserve” fund can also help cover expenses without affecting profitability during turnover.

3. Neglecting Detailed Financial Analysis

With my background in accounting, I’ve seen how essential it is to double-check every figure when evaluating a property’s financials. Many new investors rely solely on the seller’s provided numbers or, worse, base their decisions on a pro forma statement without running their own calculations. Sellers’ financials may not always reflect the full picture—they might leave out maintenance costs, overstate projected rental income, or not account for all operational expenses.

When I analyze a property, I focus on every detail: reviewing past rent rolls, scrutinizing maintenance logs, and breaking down operational costs line-by-line. This level of analysis helps reveal potential red flags and ensure that the investment aligns with my financial goals. By digging deep into the numbers and questioning anything that seems inconsistent, new investors can avoid surprises down the line and make better-informed decisions.

Final Thoughts

Multifamily real estate investing can be a fantastic way to build wealth, but avoiding costly mistakes is key. By accurately budgeting for renovations, planning for vacancy and turnover, and conducting thorough financial analysis, you’ll set yourself up for success. Each of these steps takes diligence and effort, but the rewards—both financial and personal—can make them worthwhile. As you begin your journey, remember: real estate investing is a marathon, not a sprint. Taking the time to avoid these common pitfalls can make all the difference in your investment success.