If you’ve been thinking about passively investing in multifamily real estate, you might be wondering—what makes a great deal?
My partners and I have acquired apartment complexes worth over $350 million, and after years of experience, we’ve identified four key things we look for in every deal. These factors help us reduce risk, maximize returns, and create stable cash flow for our investors.
The Problem: Not All Deals Are the Same in Terms of Expected Performance
Investing in multifamily real estate can be incredibly rewarding, but it’s not as simple as picking any property (or operator) and expecting it to perform well. Too often, investors make mistakes by overpaying, underestimating expenses, or using risky financing.
If you don’t evaluate deals properly, you could end up with a property that doesn’t have cash flow, has unexpected costs, or even worse—one that loses value over time. That’s why it’s so important to focus on the right criteria from the beginning.
Let’s dive into the four must-have factors we consider before buying any multifamily property.
1. Cash Flow from Day One
We focus on value-add multifamily properties, which means we’re looking for opportunities to improve a property and increase its income. But even with a value-add strategy, the deal must generate cash flow from day one.
Unlike new developments that often take two to three years before producing income, value-add properties allow us to generate immediate returns. This flexibility means we’re not forced to sell in a bad market—we can wait for the right time while the property continues producing income.
For example, in our latest acquisition, we’re projecting cash flow in year one for our investors. This approach provides stability, reduces risk, and ensures that the investment continues to build equity over time.
2. Conservative Underwriting
Anyone can make a spreadsheet look good, but real underwriting needs to be grounded in reality. We take a conservative approach when evaluating deals to ensure that our investments hold up even in less favorable conditions.
For example, in our latest deal in Atlanta, we modeled a higher-than-expected economic vacancy for the first few years, just in case leasing takes longer than expected. We also assumed a 5% cap rate for our exit in 2029, even though market forecasts predict something lower.
Additionally, while the market is projecting 4% rent growth per year, we’ve modeled only 2.9% growth to maintain a margin of safety. By setting conservative assumptions, we protect our investors from downside risk while ensuring strong returns even in a more challenging market.
3. The Right Debt Structure
Debt is one of the most important factors in any real estate deal. It’s not just about getting the lowest interest rate—it’s about structuring the loan properly with the right loan-to-value ratio, interest rate type, and loan terms.
A couple of years ago, investors had to rely on high-leverage, short-term bridge loans with interest-only payments.
These deals often required aggressive rent growth assumptions to be viable. But today’s market has changed, and we’re now seeing lower leverage debt with fixed-rate agency loans for 5–7-year terms.
This shift in financing means we’re able to lock in better terms and reduce risk, making it a safer time to invest compared to just a couple of years ago. By structuring our debt properly, we protect our investors from interest rate fluctuations and market downturns.
4. Sufficient Reserves
Having strong reserves is one of the most overlooked aspects of real estate investing. Reserves allow us to cover unexpected costs, fund construction projects, and navigate vacancies as we renovate and improve units.
For value-add properties, reserves are critical because they ensure that we can execute our business plan without financial strain.
They also act as a buffer for unexpected repairs or shifts in the market. If we ever hit a temporary slowdown in leasing, our reserves give us the ability to continue operating without putting the investment at risk.
By maintaining sufficient cash reserves, we ensure that our properties continue to perform and generate stable returns for our investors.
How to Get Involved
If you’re looking to invest in multifamily real estate and want to learn more about how we evaluate deals, we’d love to connect with you.
Want to learn more? Head to nighthawkequity.com/intro to book a call with us. Let’s see if our deals are the right fit for your investment goals!
To your success,
Michael Blank
