Most multifamily deals do not deserve a full underwrite. The faster you can separate real opportunities from noise, the more time you spend on deals that actually close. Before building a model on any multifamily deal, run it through five numbers. Each one takes only a rent roll, a trailing twelve-month statement, and about ten minutes. If a deal fails here, it rarely improves later.
1. The cap rate spread
Compare the deal's going-in cap rate to the current market cap rate for that submarket and vintage. A deal priced 50 basis points or more inside the market is asking you to pay for someone else's optimism. The spread should pay you for the work ahead, not price in a perfect exit before you have lifted a finger.
Be specific about the comparison. A 1980s value-add building in a tertiary market should not trade at the same cap rate as a stabilized 2015 build in a primary metro. If the going-in cap looks tight, ask why: is the in-place income inflated by one-time items, or is the seller simply anchored to last cycle's pricing? Either answer tells you something before you open a spreadsheet.
2. Trailing twelve NOI, not the pro forma
Brokers lead with pro forma. Lead instead with the trailing twelve months of actual net operating income. The gap between what the property earns today and what the offering memorandum promises is the entire business plan. If that gap depends on rent growth no one in the market is achieving, the deal is a bet on the market, not on operations.
A durable business plan closes that gap with things you control: renovating units, fixing collections, trimming expenses, adding ancillary income. A fragile one closes it with assumptions you do not control, like 6% annual rent growth or a cap rate that compresses on exit. Underwrite the controllable version and let the rest be upside.
3. The expense ratio
Operating expenses as a percentage of effective gross income should land in a believable band for the asset class and region. A 35% expense ratio on a 1980s value-add deal is not conservative underwriting, it is a number that will cost you at refinance when the lender's underwriter swaps in a realistic figure. For most small and mid-size multifamily, a 40% to 50% expense ratio is the honest range, depending on whether the owner or the tenant pays utilities.
Flag anything that looks too clean and ask what was left out. Common omissions are management fees on owner-operated deals, real estate taxes that will reset on sale, and deferred maintenance that has simply not been spent yet.
4. Debt service coverage at today's rates
Run the debt service coverage ratio on the actual NOI at a rate you can finance today, not the rate from two years ago. If the deal only works at a coupon the market no longer offers, it does not work. This single check kills more deals than any other, and it should.
Most lenders want to see a 1.20x to 1.25x DSCR at stabilization. If the deal needs a sub-5% permanent rate to clear that bar, the underwriting is leaning on a forecast, not a fact. The same discipline applies to the bridge period: if you are acquiring with short-term debt, confirm the exit refinance pencils at current permanent rates before you commit. For how that bridge-to-permanent path works in practice, see the guide to small multifamily value-add.
5. Rent to income
Tenants can only pay what they earn. If in-place rents already sit above 30% of local median household income, the rent growth in the pro forma has a ceiling the spreadsheet ignores. Strong rent-to-income headroom is what makes a business plan durable through a soft patch, because tenants have room to absorb increases without defaulting or leaving.
This is also a quality-of-cash-flow test. A deal where rents are well below 30% of area income has built-in pricing power. A deal already pushing affordability limits is relying on a tenant base with no slack, which is exactly the cohort that breaks first in a downturn.
Putting it together
None of these five numbers requires a model. They require a rent roll, a trailing twelve, and ten minutes. A deal that clears all five earns a full underwrite. A deal that fails two or more earns a polite pass and a faster pipeline. The discipline is not in the math, it is in the willingness to walk away early.
This is the same screen Requity Investments applies before committing capital, and the same rigor behind the loans Requity Lending underwrites. If you are an accredited investor who wants exposure to multifamily and manufactured housing underwritten this way, explore the Requity Income Fund.