A multifamily pro forma is a sales document with a returns model attached. The numbers look defensible because someone built them in Excel and stamped “pro forma” on the page. That doesn't make them right.
Across hundreds of multifamily offerings, the same five errors keep showing up. If you're an active operator or an LP doing due diligence, learning to spot these will save you from at least one deal a year you would have regretted.
Error #1: Rent growth assumptions that don't exist in the data
The pro forma says 4–5% annual rent growth for five years. The submarket has averaged 2.3% over the last decade. The pro forma is wrong, or the GP is making an exit-rent assumption they need to clearly justify with a value-add story.
How to check: Pull the submarket's 10-year rent growth average from CoStar, Yardi Matrix, or KeptDo's market data. If the pro forma is more than 100 basis points above that average, you need a value-add explanation that holds up.
Error #2: Operating expense ratios from a different building
Pro formas frequently project a 35% expense ratio on a building that's currently running 48%. The story is “we'll bring expenses down through better management.” Sometimes true. Usually not, at the magnitude claimed.
How to check: Pull the trailing 12 months of actual expenses. Calculate the actual ratio. If the pro forma assumes a ratio more than 5 points lower than current, ask line-by-line where the savings come from. “Better management” is not an answer.
Error #3: Cap rate compression at exit
The buy cap rate is 6.5%. The exit cap rate is 5.75%. The pro forma is assuming the market gets more expensive while everything else stays the same. Sometimes this is right. In a flat or rising rate environment, it's wishful.
How to check: Underwrite the same exit cap as the buy cap. Or +50 basis points if you want to be conservative. If the deal still works, great. If it needs the cap rate compression to clear your return threshold, the deal depends on a macro bet, not the asset.
Error #4: Renovation upside without renovation cost
The pro forma shows a $200/month rent premium on renovated units. It doesn't show what the renovation actually costs, or how long units are vacant during turn, or what the percentage of units actually turning is.
How to check: For every dollar of rent uplift in the pro forma, you should see at least 8–12 months of renovation cost on the same line. If the renovation budget per unit is below $5K for an interior turn in 2026, it's underbudgeted.
Error #5: No sensitivity, just one happy path
The pro forma shows one set of numbers. If everything goes right, the IRR is 18%. There's no downside scenario. No analysis of what happens if rent growth comes in at 2% instead of 4%, or vacancy hits 8% instead of 5%, or interest rates move 100 bps.
How to check: Run the same model with: 2% rent growth, 8% vacancy, +100bps interest rate, exit cap +50bps. If the IRR drops below 8% on this stress case, the deal is fragile. Sophisticated LPs will already be running this in their heads.
What conservative underwriting actually looks like
Conservative isn't pessimistic. Conservative is honest. In 2026 Midwest Class B multifamily, conservative underwriting that holds up looks like:
- 3% rent growth (or whatever the 10-year submarket average is)
- Expense ratio +/- 2 points of trailing 12 actual
- Exit cap = buy cap, or +50 bps
- Renovation cost = 12 months of the rent uplift it produces
- Worst-case IRR still 8%+, base-case 10–12%, upside 15%+
If you can't hit those numbers with conservative inputs, the deal is broken. Not the underwriting. Walk.
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