5 Deal Killer Red Flags During Multifamily Due Diligence

A multifamily asset often looks dazzling in a pitch deck: glossy exterior photos, a rent roll trending upward, and promises of “value-add” upside. Behind the slide deck lives the raw operating file - the only place where risks hide in plain sight. The five warning signs below have derailed countless closings, left earnest-money deposits at risk, and, worse - saddled investors with under-performing buildings.

Read on before wiring that non-refundable deposit.

Revenue Illusions

Sellers love pro formas built on forward-looking rents. Yet lenders underwrite trailing figures. When the uplift rests on “loss-to-lease burn-off,” tighten your grip on the calculator.

Quick tests

• Compare the last 90 days of collections with the prior 12-month average.

• Scan concessions: one-month-free leases often expire before closing.

• Audit renewal spreads; double-digits may reflect short-term “summer pricing,” not durable demand.

National vacancy drifted from 5.6% in Q1 2023 to 6.2% by Q2 2025, pushing power back to tenants. Cap rates flattened at 4.75% for core assets over the same span, limiting exit upside.

Deferred CapEx Wearing Lipstick

Fresh paint hides pitted siding; new carpet conceals slab leaks. Capital-expenditure (CapEx) history speaks louder than any walkthrough.

Line Item	2020	2024	% Change
Roof insurance claim frequency (avg. per 100 units)	0.8	1.2	+50%
Insurance premium per unit (USD)	310	450	+45%

A seller who skipped roof overlays during the cheap-debt era may now face soaring premiums and deductibles. Probe engineering reports, scope plumbing stacks, and request five years of CapEx invoices.

Insurance & Taxes on a Runaway Escalator

Premium shock is no longer isolated to coastal hurricane zones.

The Minneapolis Fed logged a 45% jump in average multifamily premiums from 2023 to 2024. Houston reports eclipse that figure, with Texas affordable-housing operators citing as much as 300% inflation since 2020.

Property taxes march upward just as briskly. In Detroit the effective apartment tax rate now lands at 3.72%, roughly 70% above the national sample average. When underwriting, cap reserves for both line items using forward projections rather than trailing numbers.

Stress-Test Worksheet

• Layer a 25% insurance hike into year-one expenses.

• Model re-assessed taxes at the purchase price multiplied by the local millage rate.

• Confirm lender reserves - many now escrow 14 months of insurance at closing.

Fail this stress test and the investment thesis evaporates.

Utility & Environmental Surprises

A spectacular cash-on-cash forecast collapses if forced to remediate asbestos, replace galvanized risers, or install private hydrants after a surprise fire-marshal visit.

Bullets to keep in your field notebook:

• Phase I environmental with reliance letter - order it early.

• Sewer-camera footage for lines older than 1980.

• Historical water bills; look for unexplained spikes hinting at slab leaks.

• Energy-audit benchmarking; local ordinances in New York, Los Angeles, and Denver now mandate public disclosure.

Miss a hidden underground storage tank and you own a six-digit cleanup bill that yields zero rent growth.

Title & Legal Entanglements

Wrong-way easements, blanket loans, or undisclosed mechanics’ liens can slow or halt closing. A seasoned title attorney will request:

• Full chain-of-title search extending 40 years.

• UCC filings on personal property - laundry leases often sit here.

• Estoppel certificates from commercial tenants (yes, the daycare in the mixed-use wing counts).

• Survey with Table A items: driveway access, utilities, encroachments.

Clear the stack early; REIT disposals and TIC structures hide complex signature blocks that stall escrow late in the timeline.

Pristine rent rolls and drone footage never killed a deal - unknown liabilities did.

Run every acquisition model twice: once with the seller’s story, once with reality after these five litmus tests. The cash flow that survives both rounds is worth pursuing; the rest belongs in the recycle bin. A disciplined process guards investor capital far better than charisma or enthusiasm ever could.

Credit: (Freddie Mac, CBRE, Houston Chronicle, NMHC)

No Offer or Solicitation

This communication is intended solely for informational and educational purposes. It does not constitute, and shall not be construed as, an offer, invitation, or solicitation to purchase, acquire, subscribe for, sell, or otherwise dispose of any real estate investments, securities, or related financial instruments. Nothing contained herein should be interpreted as a recommendation or endorsement of any specific investment strategy or opportunity. Furthermore, this communication does not represent, and shall not be deemed to constitute, the issuance, sale, or transfer of any real estate interests in any jurisdiction where such actions would be in violation of applicable laws, regulations, or licensing requirements.

About NCC IQ

NCC IQ is the official real estate eLearning platform of NCC (Northstar Capital & Co.), developed to support the ongoing education and advancement of industry professionals. The platform offers a robust mix of premium and complimentary resources—including on-demand videos, live virtual events, industry podcasts, eBooks, and expert-authored articles—designed to deliver actionable insights and practical tools. Stay informed by following us on LinkedIn and Instagram for the latest educational content and market updates.