The Hidden Power of Underwriting Assumptions in Real Estate Deals

By Mark Kenney | Think Multifamily

When it comes to multifamily investing, it’s easy to get caught up in impressive spreadsheets and pro forma projections.

After all, numbers don’t lie… right?

The reality is: Numbers only tell the story you ask them to tell — and unfortunately people do lie.

And when the assumptions behind those numbers are unrealistic, even the most beautiful model will collapse under pressure.

At Think Multifamily, we emphasize this with every deal we evaluate:
Bad underwriting isn’t always obvious — it often hides behind optimistic assumptions that seem harmless at first glance.

Real Story

Over the past few years, we’ve seen deal packages projecting:

• 10%–12% rent growth every year, even in flat markets.

• Expenses magically shrinking despite rising insurance, taxes, and labor costs.

• Assuming a refinance or sale will happen in 2-3 years.

• Exit cap rates staying the same — or even compressing — regardless of market cycles.

In many cases, these numbers helped deals look great on paper. But when reality didn’t match the assumptions, investors paid the price in lower returns, deferred distributions, capital calls, or a complete loss of equity.

Key Lesson

Underwriting is only as good as the assumptions behind it.

When evaluating deals (yours or others’), it’s critical to:

• Stress-test assumptions against historical data, not just hope for the best.

• Build in conservative estimates for rent growth, expenses, and exit strategies.

• Recognize that market cycles, lender terms, and operational challenges will impact even the best-laid plans.

Optimistic assumptions don't protect capital.
Conservative, reality-checked underwriting does.

Practical Guidance

✅ Assume slower rent growth than the recent past — and plan for it.
✅ Account for rising expenses like insurance, taxes, and repairs.
✅ Use higher, not lower, exit cap rates when planning your sale.
✅ Challenge every rosy forecast with the simple question: "What happens if this doesn't go as planned?"

Bottom Line

If your numbers only work when everything goes perfectly,
your business plan isn't a strategy — it’s a gamble.
And in multifamily investing, gambling with investors' money is never acceptable.

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