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.
Make sure to download our free guide, 7 Questions Every Passive Investor Should Ask, here.
Key Takeaways
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Understand how negative cash flow quietly erodes deals over time
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Learn why conservative underwriting matters more than optimistic projections
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See how improper insurance coverage can magnify catastrophic losses
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Recognize how leverage, partners, and market selection impact long-term outcomes
Topics
Negative Cash Flow and Poor Underwriting
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Cash flow equals income minus expenses, debt service, and CapEx
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Renovations, rising expenses, and miscalculations can quickly create losses
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Trailing 12-month statements often understate true operating costs
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Investors must model realistic expenses and conservative income assumptions
Catastrophic Events and Insurance Coverage
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Fires, storms, and other disasters can shut down buildings for months
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Insurance must cover both property damage and lost business income
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Understanding deductibles, exclusions, and coverage details is critical
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Proper insurance makes unavoidable events survivable from a business standpoint
Over-Leverage and Loan Risk
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High loan-to-value ratios reduce flexibility during refinancing or sale
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Properties that fail to create value can become impossible to exit
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Conservative leverage (around 65% LTV or lower) preserves options
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Loans must match the business plan and hold strategy
Bad Partners and Weak Teams
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Poor property managers, contractors, or partners can destroy deals
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Fraud, negligence, or lack of accountability creates hidden risk
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Due diligence, references, and checks and balances are essential
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Quality partners cost more, but reduce long-term losses
Market Selection and Long-Term Growth
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Cash-flow-only markets may lack appreciation
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Aging properties require reinvestment over time
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Markets and submarkets must support long-term value growth
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Cheap properties without upside can become capital traps
Over-Improving and Flawed Business Plans
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Renovations must align with market rent ceilings
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Over-improving units doesn’t guarantee higher returns
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Class B and C properties have natural rent limits
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Staying disciplined with budgets and numbers protects returns
📢 Announcement: Learn about our Apartment Investing Mastermind here.
Next Steps
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Stress-test cash flow assumptions with conservative expense models
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Review insurance policies to confirm full loss-of-income coverage
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Reevaluate leverage levels and loan terms before committing capital
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Vet partners, vendors, and markets with the same rigor as the deal
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.