Common Mistakes When Evaluating Rental Returns

Here’s the reality: most investors think they’re thorough. They’re not. They do a surface-level scan, miss key details, and get blindsided by problems they ‘couldn’t have foreseen.’ In reality? They just weren’t obsessive enough. The best real estate deals aren’t made when you sign the contract. They’re made in the trenches, digging through financials, property histories, and lease agreements. This is where the detail-obsessed thrive. Here's how it works: 1. Numbers never lie - unless you don't check them Most investors look at rent rolls, nod approvingly, and move on. That’s amateur hour. The obsessive investor verifies every lease, cross-checks payment histories, and calls past tenants. Hidden delinquencies? Misrepresented rents? Lease clauses that can screw you later? Catch them before they catch you. 2. Walking the property? Crawl it instead. Most investors do a walkthrough. The smart ones crawl. Get under the house. Check for moisture, rot, foundation issues. Climb into the attic. Look for leaks, bad wiring, and insulation problems. Behind walls and under floors is where the real surprises hide. Miss these, and your ‘great deal’ becomes a financial sinkhole. 3. The people factor; read between the lines A seller who’s too eager? A property manager who won’t stop talking? These are signals. Dig deeper. Are they hiding a problem? Is the local market about to shift? The devil isn’t just in the details, it’s in the body language, the offhand comments, the inconsistencies in their story. Your obsession with detail will serve you well. 4. Worst-case scenario planning Most investors run numbers based on best-case projections. Big mistake. The obsessive investor runs best, worst, and most likely scenarios. They don’t just hope it works out. They underwrite to ensure it does. 5. Their proforma is a sales pitch - yours is the truth Never trust a seller’s spreadsheet. Their numbers are designed to sell you, not protect you. Build your own proforma from scratch. Verify every expense and crosscheck and stress test every assumption. If the deal still holds up? It’s real. If not? You just dodged a bullet. How to leverage OCD-level detail in due diligence ↳ Double-check everything - then check again. ↳ Verify sources independently - don’t just trust the broker or seller. ↳ Trust, but verify - assume everyone has a bias and act accordingly. ↳ Be ‘that guy’ - ask the dumb questions, insist on seeing original documents. The bottom line? What some call 'overanalyzing' is actually protecting your investment. In real estate, the obsessive win. The careless pay their tuition in losses. Which are you? *** Want to get access to some properly underwritten opportunities? Subscribe to my newsletter and be among the first to know. Link at the top of my profile Adam Gower Ph.D.

I've underwritten over a thousand real estate deals over my career, here are the 2 biggest mistakes I see passive investors make when evaluating multifamily investments: #1 They fully trust sponsor numbers #2 They focus on returns without considering the risks Until they realize the deal isn't performing as promised and they get a capital call. Here's how to analyze properties like an experienced investor: 𝗦𝘁𝗲𝗽 𝟭: 𝗟𝗼𝗼𝗸 𝗮𝘁 𝘁𝗵𝗲 𝗜𝗥𝗥 IRR is your most important return metric. It factors in the time value of money. If sponsors only show average annual rate of return ("AAR") instead of IRR, that's a red flag. Always ask for it. Value-add deals typically present 15%-17% IRR. ___ 𝗦𝘁𝗲𝗽 𝟮: 𝗣𝗮𝘆 𝗮𝘁𝘁𝗲𝗻𝘁𝗶𝗼𝗻 𝘁𝗼 𝗬𝗲𝗮𝗿 𝟭 𝗚𝗣𝗥 This single factor impacts IRR more than anything else. Some deals assume 100% of units hit post-renovation rents on day one. Completely unrealistic. Red flag: If sponsors assume >3% rent growth in year one based on recent growth numbers, they're being aggressive. __ 𝗦𝘁𝗲𝗽 𝟯: 𝗖𝗵𝗲𝗰𝗸 𝘁𝗵𝗲 𝗘𝘅𝗶𝘁 𝗖𝗮𝗽 𝗥𝗮𝘁𝗲 This determines your resale value and is the #2 factor impacting IRR the most. Many deals assume cap rates compress by 50+ basis points after 5 years. That's aggressive. Compare their assumptions to long-term market trends and historical data. __ 𝗦𝘁𝗲𝗽 𝟰: 𝗦𝘁𝗿𝗲𝘀𝘀 𝗧𝗲𝘀𝘁 𝗥𝗲𝗻𝘁 𝗣𝗿𝗼𝗷𝗲𝗰𝘁𝗶𝗼𝗻𝘀 Every deal assumes rent increases after renovations. But can people actually afford them? Compare proforma monthly rents to 30% of monthly median household income. If higher, leasing will be difficult. Also check: Population growth + job growth = future rent support. __ 𝗦𝘁𝗲𝗽 𝟱: 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 Don't chase high returns without understanding the risks. Check: - Market conditions (new supply, historical and current submarket occupancy, diversity of employers) - Type of debt - Exit assumptions - Reserves collected for unexpected expenses or drop in occupancy Ask sponsors for stress test scenarios. __ 𝗦𝘁𝗲𝗽 𝟲: 𝗞𝗻𝗼𝘄 𝗪𝗵𝗼'𝘀 𝗠𝗮𝗻𝗮𝗴𝗶𝗻𝗴 The property management company is as important as the deal itself. Ask: - How long have they been in business? - Do they have experience with this property type? A company that only manages single-family homes won't know how to run a 100-unit building. __ Did I miss anything? What would you add?

How Good Deals Go Bad—And How to Avoid Killing Your Profit Before You Even Start I’ve seen promising real estate deals fall apart—not because the property was wrong, but because the numbers were mistaken. There are a few common mistakes I see investors (even experienced ones) make that quietly destroy a deal's profitability: Underestimating expenses Overestimating timelines Overspending on renovations that don’t move the needle When I analyze a deal today, I’m brutally honest with my numbers. Because what looks like a home run on paper can quickly turn into a money pit if you're not careful. Here are a few hard-earned tips to help you avoid profit killers: 1. Pad your budget. Add a 10–20% buffer for unexpected costs, especially on taxes, insurance, and materials. 2. Control the timeline. Delays drain profit. Set clear expectations with contractors, and hold them to them. 3. Know your holding costs. Every extra month costs you interest, insurance, utilities, and opportunity. 4. Stay cosmetic where possible. Light updates (paint, lighting, fixtures, curb appeal) often bring the highest ROI. 5. Avoid opening up walls unless necessary. That’s where hidden costs (plumbing, electrical, structural) love to live. 6. Don’t overbuild for the market. Renovate to meet buyer/renter expectations—not to impress HGTV. 7. Standardize finishes. Saves money, saves time, and simplifies management across multiple properties. 8. Do a reality check on your numbers. Never fall in love with a deal. Fall in love with the return. 9. Have a “walk-away number.” If it doesn’t hit your metrics, let it go. 10. Keep learning from every deal. Even the tough ones pay dividends in experience. Every dollar you lose to poor planning is a dollar you can’t reinvest. That’s why disciplined budgeting and execution are non-negotiable. What’s one unexpected cost that surprised you on a deal—or one mistake you’ll never make again? Drop it in the comments. Let’s help others avoid it, too.

The Costly Mistakes Real Estate Syndicators Made (and What You Can Learn From Them) After speaking with over 100 syndicators, one thing is clear: success in real estate isn’t just about finding deals—it’s about avoiding costly mistakes. Here are some of the biggest missteps operators made over the last few years and the lessons you can take away to build a stronger business: 1️⃣ Overreliance on Rent Growth Some operators underwrote deals assuming aggressive rent increases year over year. When the market slowed, so did their cash flow. ✅ Lesson: Be conservative in your underwriting. If the deal doesn’t work without optimistic rent projections, it’s not the right deal. 2️⃣ Ignoring Fixed-Rate Debt Variable-rate loans looked attractive in 2021, but as interest rates climbed, some operators saw their debt payments double—or worse. ✅ Lesson: Lock in fixed-rate debt when possible. What seems like a “savings” today can cost you tomorrow. 3️⃣ Underestimating Expenses Skyrocketing insurance premiums, unexpected tax hikes, and increasing repair costs crushed some deals. ✅ Lesson: Stress-test your underwriting for expense volatility. Assume the unexpected—it’s better to overestimate than fall short. 4️⃣ Skipping Due Diligence on Markets Jumping into “hot” markets led some operators to overpay for deals that didn’t perform as expected. ✅ Lesson: Go where the fundamentals make sense—not just where the hype is. Look for job growth, low vacancy, and economic diversity. 5️⃣ Lack of Communication with Investors When challenges hit, some syndicators went silent. This eroded trust and made it harder to raise capital for future deals. ✅ Lesson: Be transparent. Even when things go wrong, regular updates and clear communication build credibility and long-term trust. The market over the last few years was a wake-up call for many operators. The ones who learned from their mistakes—and adjusted—are now better positioned to thrive. What lessons have you learned (or seen others learn) in this market cycle? Let’s start a conversation below. 👇

You don’t lose money in real estate because of bad markets. You lose money because of bad decisions. Most new investors don’t fail because of external factors. They fail because they make predictable mistakes—mistakes that experienced investors know to avoid. 1. Ignoring Cap Rates – Buying a property without understanding its true return. Solution: Always compare cap rates to market averages and your investment goals. 2. Underestimating Operating Expenses – Hidden costs like maintenance, vacancies, and management fees can kill profits. Solution: Budget at least 20-30% of gross income for expenses. 3. Overleveraging – Taking on too much debt with little room for market shifts. Solution: Stress-test your deal with higher interest rates and vacancy assumptions. 4. Skipping Due Diligence – Rushing into deals without inspecting financials, tenants, or property conditions. Solution: Verify everything—leases, expenses, and even zoning laws . 5. Misjudging Market Cycles – Buying at the peak or ignoring economic trends. Solution: Study local supply and demand, interest rates, and future development plans. 6. Emotional Decision-Making – Falling in love with a deal instead of letting numbers guide you. Solution: Stick to your investment criteria and let data drive your choices. 7. Not Having an Exit Strategy – Investing with no clear plan for resale, refinancing, or repositioning. Solution: Always have multiple exit strategies before signing the deal. The best investors don’t guess—they analyze, verify, and plan before they buy. What’s the biggest mistake you’ve made—or almost made—in real estate? 🔃If you found this post helpful, repost it with your network. #realestate #inspiration