I have killed more deals than I have closed. That isn't a failure rate. That's underwriting doing its job.

Every deal that crosses my desk starts with the same question: what's this property actually worth to us, based on what we can verify, not what the seller or broker says it's worth? The answer to that question has saved me hundreds of thousands of dollars in bad acquisitions I didn't make.

Here's exactly how we underwrite a multifamily deal before a single dollar moves.

Step 1: The Broker's Package (and Why You Can't Trust It)

Every deal starts with an offering memorandum. The broker sends over a glossy PDF with beautiful photos, projected returns, and a pro forma that would make any investor salivate.

Ignore the pro forma.

I'm not saying brokers are dishonest. Most aren't. But their job is to sell the building, and the OM is a marketing document. The pro forma uses "stabilized" numbers, which means best-case assumptions on rent, vacancy, and expenses. The trailing financials are usually a T-12 that may or may not reflect reality.

The OM is your starting point for due diligence, not your ending point for a decision. Treat it like a resume from a job applicant. Good information in there, but you're going to verify every line.

Step 2: Rent Roll Analysis

The rent roll is the foundation of the entire underwriting. If the rents are wrong, everything downstream is wrong. Here's what we're looking for.

Current rents vs. market. Pull comps for every unit type in the building. Not Zillow estimates. Actual lease comps from comparable properties within a one-mile radius, same vintage, same class. If the seller is showing $950 on a two-bedroom and the market says $1,050, that's upside. If the seller is showing $1,100 and the market says $950, that's a red flag. Somebody may be buying tenants with above-market concessions, and those tenants will leave.

Lease expiration schedule. When do the current leases expire? If 60% of the building rolls over in the same quarter, you have a concentration risk. One bad quarter in the rental market and you're filling half the building at once. We want staggered expirations, ideally spread across the spring and summer leasing season.

Tenant quality. How long have tenants been in place? Long-tenure tenants are generally a positive sign for property condition and management, but they also tend to be significantly below market on rent. A building full of five-year tenants paying $200 below market is both an opportunity and a risk. You get the upside if you execute the rent increases. You get a wave of turnover if you push too hard too fast.

Delinquency. Request an aged receivables report. If 15% of the building is 30-plus days late, that isn't a collections problem. That's a tenant quality problem, and it tells you something about how the property has been managed and who was approved to live there.

Step 3: Expense Reconstruction

This is where most amateur underwriters get burned. They take the seller's expenses at face value. Don't do that.

T-12 vs. trailing 3-month run rate. A trailing twelve-month income and expense statement is standard. But look at the last three months separately. Why? Because the seller might have deferred maintenance, skipped landscaping, or reduced staffing to make the T-12 look better before listing. The last three months of actuals often tell a different story than the full year.

Owner-specific vs. property-specific expenses. Some expenses belong to the property. Insurance. Taxes. Utilities. Maintenance. Landscaping. Those transfer with the building. Some expenses belong to the owner. Their management fee structure, their bookkeeper, their personal cell phone on the business account. Strip out owner-specific expenses and rebuild with your own cost structure.

Management fee adjustment. If the owner self-manages, there's zero management expense on the P&L. That doesn't mean management is free. Add 8-10% of gross revenue for professional management, because that's what it actually costs. If you're planning to self-manage, good for you, but underwrite it with professional management anyway. Your time has a cost, and someday you will want to stop answering 2 AM calls.

Insurance repricing. Get a real quote. Don't use the seller's premium. Insurance rates in Nebraska are up 29% year over year. Whatever the seller is paying is probably not what you will pay, especially if their policy renews before close. Get a quote from two or three carriers before you finalize your underwriting.

Property tax projection. The county will reassess the property based on your purchase price. If you're buying at a price significantly above the current assessed value, your property taxes are going up. Model it. A $50,000 jump in assessed value in Douglas County can add $1,200 to $1,500 to your annual tax bill.

Step 4: CapEx Inspection

This is where deals die, and where they should. Deferred capital expenditures are the silent killer in multifamily acquisitions.

Walk the property with a contractor, not just an inspector. Inspectors tell you what's wrong. Contractors tell you what it costs to fix.

The big five:

Roof. Age, condition, remaining useful life. A 20-unit building with a roof that needs replacement in two years is a $40,000 to $80,000 surprise you need to price into the deal today.

HVAC. Individual units or central system? Age of each unit? A building with 20 furnaces that are all 18 years old is a ticking clock. Budget $4,000 to $6,000 per unit for replacement.

Plumbing. Galvanized pipes? Polybutylene? Cast iron with 50 years of buildup? A full repipe on a 20-unit building can run $100,000 or more. This is the expense that bankrupts unprepared buyers.

Electrical. Panel capacity, wiring age, code compliance. Older buildings with 60-amp panels and aluminum wiring are an insurance liability and a capital expense waiting to happen.

Parking lot and exterior. Asphalt condition, drainage, retaining walls, siding, windows. These aren't sexy expenses, but a $30,000 parking lot resurface that hits in year one will wreck your returns if you didn't budget for it.

The capital reserve test. After you have a full CapEx assessment, build a five-year capital plan. Total up every major expense that's likely to hit in years one through five. Divide by five. That's your annual capital reserve requirement. If that number, added to your operating expenses, pushes your cash-on-cash return below your minimum threshold, the deal doesn't work at the asking price.

Step 5: NOI Stress Testing

Now you have your reconstructed income and expenses. You have a real NOI number, not the broker's number. Time to stress test it.

Vacancy stress test. Your underwriting probably assumes 5-7% vacancy. What happens at 10%? On a 20-unit building at $1,100 average rent, the difference between 5% and 10% vacancy is $13,200 per year. Can the deal still cash flow? Does it still clear your DSCR requirement?

Interest rate stress test. If you're getting a quote at 6.5% today, what happens if rates are 100 basis points higher by the time you close? On a $1.5 million loan, 100 basis points adds roughly $15,000 per year to your debt service. If your deal only works at today's rate and dies at a higher rate, you're taking on underwriting risk you can't control.

Tenant concentration stress test. What if your highest-paying tenant, or your largest unit, goes vacant the month after close? If one tenant leaving breaks your cash flow, the building has a concentration problem. This matters more on smaller properties where a single unit represents 10% or more of revenue.

Run all three. If the deal survives all three stress tests and still meets your return requirements, it's a real deal. If it only works under perfect conditions, it's a gamble.

Step 6: The Kill Criteria

Every deal needs a clear set of kill criteria, defined before you get emotionally invested. These are the non-negotiable reasons to walk away.

Negative leverage. If the cap rate is lower than your cost of debt, you're paying more to borrow money than the property earns. Unless you have a very specific value-add-playbook-for-b-and-c-class-multifamily) plan that closes that gap in year one, walk away. Hope isn't a strategy.

Deferred CapEx exceeding value-add budget. If the capital expenditure needed just to stabilize the building exceeds the total budget you planned for improvements, the deal isn't a value-add. It's a turnaround. Those are different risk profiles and require different capital structures.

Environmental flags. Phase I environmental reports exist for a reason. Underground storage tanks, asbestos, lead paint in pre-1978 buildings, contaminated soil from adjacent properties. Any of these can create six-figure liabilities that no amount of NOI will cover.

Title issues. Liens, easements that restrict use, boundary disputes, unresolved code violations. If the title report comes back dirty, your attorney should be the one telling you whether to proceed or walk. Not the seller. Not the broker.

Seller cooperation. If the seller won't provide full financials, resists inspections, or keeps changing terms, that's a signal. Good deals have cooperative sellers because they have nothing to hide. Difficult sellers are usually difficult for a reason.

The Discipline of Saying No

Here's the thing most people don't talk about in real estate education. The skill isn't in finding deals. Deals are everywhere. The skill is in killing the bad ones before they cost you money.

Every deal I have walked away from felt like a loss in the moment. Every bad deal I have seen someone else close felt like a loss for them about six months later.

Underwriting isn't a formality. It isn't a spreadsheet you fill out to feel productive. It's the discipline that separates investors who build wealth from investors who buy problems.

Want a Second Set of Eyes?

If you're looking at a multifamily deal in the Omaha or Lincoln market and want someone to pressure-test your numbers, reach out. I'm happy to look at your underwriting, flag what concerns me, and tell you what I would want to see before moving forward.

No fee for a conversation. Just send the deal summary to Tanner@TopTierInvestmentFirm.com or connect with me on LinkedIn. I would rather help you kill a bad deal than watch you learn the hard way.

Looking at a deal in the Omaha or Lincoln market? We'll pressure-test your numbers for free. Reach out at Tanner@TopTierInvestmentFirm.com.

Tanner Sherman is the Principal and Managing Broker of Top Tier Investment Firm in Omaha, Nebraska. He co-hosts the Freedom Fighter Podcast with Ryan of Avara Investments.

How We Underwrite a Multifamily Acquisition Before a Dollar Moves