Multifamily Underwriting: How to Spot Bad Deals Before You Invest

Don Goff (00:00)
The people that stay focused now are the people who are gonna be ahead of everybody else because you’re building your relationships with your brokers, you’re staying in communication, you’re underwriting deals. How are you gonna identify when the market shifts or a good deal? How are you gonna stay front and center? If you wait three months or take three or four months off and say, “I’m just gonna wait, there’s nothing out there,” you’re four months behind everybody else. So just know that. Stay the course doing you and you could get a gem along the way, but don’t get frustrated with it. Keep on doing it because if you’ve just analyzed five, ten, fifteen deals, you’re gonna know when things start to change before everybody else. You’re gonna identify the good deals faster. So keep underwriting.

Freddie Steen (02:09)
Hey everyone. Welcome to the Investor Fuel Podcast brought to you by Real Estate Pros. I’m your host, Freddie, and today I’m joined by someone I’ve been looking forward to chatting with. Don Goff, who’s been making serious moves with Next Level Multifamily in the real estate space, particularly around underwriting and capital raising. Don, I’m glad to have you here. I think our listeners are really going to take something away from how you’re approaching raising capital and underwriting, scaling, and also understanding the niches in the business that are coming in 2027. So let’s dive in. First off, for people who may not be familiar with your world, give us the short version. What’s your main focus these days? And what markets are you operating in?

Don Goff (03:00)
My main focus these days is—I’ve been a mentor for twenty years. So I’ve coached over two thousand people, mentored over two thousand people on how to build a real estate business from the ground up. So that’s one of my fortes, education, helping people. I call my business Next Level because no matter where you’re at, I want to help you get to the next level. So that’s one piece of it. And then I also have the raising capital. I’ve been doing fund of funds for the last few years as a new way of doing things with the multifamily. Before it was co-GP, you had a cut of the GP. It’s more compliant to do fund of funds, partnering with some of my former students. That’s how I got back into investing when I saw the market starting to change and everything, ’cause now’s a great time. And so yeah, so I do the fund of funds and then underwriting. That’s really—I was an engineer when I first got started, Freddie, before I got into real estate. So underwriting and numbers have always come natural to me. Engineer before this, and so when I first started coaching, created an underwriting template and been tweaking it for the last twenty years to what it is today. And for the program I taught for, that’s everybody that went through the program used it because it was simple, easy to use to educate people and to get started.

Freddie Steen (03:54)
You were an engineer?

Don Goff (04:13)
If you did ask my primary markets too, I’d say Atlanta and Nashville, two favorite markets, but I really like the East Coast, the Carolinas as well, because I like—it’s easy to get there. I’m from Rhode Island. If you can’t tell, I got a little accent going on, right? So yeah, so I love the East Coast. I do have property I invest in in Houston and in Phoenix, but yeah, I like the East Coast and that’s why I train people on if you want to make it easy to get to if you can.

Freddie Steen (04:38)
Don, our Real Estate Pros audience is writhing in their seats, clamoring for attention now in their heads, thinking about some of the things that you just said. And I know one of them is this. Don, you went to college for biomedical engineering. How did that degree translate into putting into systems for underwriting and capital systems?

Don Goff (05:01)
Yeah, well when I first got started—everything’s a system. That’s how you have—and that’s what you learn in underwriting, right? My mom wanted to kill me when I was leaving corporate America to get into real estate. But as far as underwriting goes, it’s about the numbers, having systems of how to get through the numbers, how to do your underwriting, a systematic approach to get all the information for your underwriting. So good information going in means good information going out, so you can identify the good deals and, more importantly, identify the bad ones and stay out of the bad ones. So I use the systems to be able to put the underwriting in, what we’re looking for, to mitigate our risk as we’re going through it. But it’s really gathering all the correct information, using the right numbers, not just throwing in numbers, and knowing how to look at the numbers, knowing how to know the why of what’s behind these numbers. So for underwriting, that’s pretty much what I did. And for fundraising, the same sort of system is reaching out to people, building relationships, building long term, being in this for the long term, treating people the right way, always planting seeds. Things take time, right? So just going out there and letting people know what you’re doing and seeing who has an interest in what you’re doing. Peaking someone’s interest and being a solutions provider, especially with real estate, especially with the stock market so volatile, everyone’s afraid of it right now, right? Not sure if it’s gonna go up, down, crash, we keep on hearing AI bubble. Well, the nice thing about multifamily, it’s a hard asset. Somewhere where people can get the best of both worlds, cash flow and appreciation. So creating a system around that to be able to show people they have other options and that if they’re looking to diversify.

Freddie Steen (06:39)
Well, I tell you what, my crackpot research team informs me that not only were you a top-notch student at a very competitive college in Massachusetts, but you also have translated that engineering background into the systems that you’re putting in place at Next Level Multifamily. I love it. Don, you recently posted on social media that lofty goals are important, but unrealistic goals are dangerous. You noted that investors must reverse engineer the process through strict activity like broker calls and underwriting. When you are looking at a potential multifamily deal for Next Level Capital, how do you mathematically distinguish a true value-add opportunity from an unrealistic projection? I mean, what specific data metric makes you pass on a deal immediately?

Don Goff (07:33)
Yeah. Great, great question. Well, first of all, you need to know, hey, how is the property underwriting today? I mean, and what are the projections? The projection page, like what are they projecting for rents? In today’s market, in the primary markets, you know, the Atlantas, the Phoenixes, the Dallases, the Houstons, the ones that overbuilt, if people are projecting rent growth in those markets right now, then I almost immediately know. No, there are gonna be some submarkets, so don’t get me wrong, that do work, but overall if they have crazy projections there for rent growth. We live that. It was great right now in those primary markets, but not the time. They’re giving a lot of concessions, sometimes four to six weeks, eight weeks in some markets. So you can’t be projecting rent growth during those times. Maybe you can reduce concessions somewhat, but we’re gonna be a little conservative because no one knows. No one knows how long that’s gonna go on. So that’s one of the big things that I look for. If someone’s projecting high rent growth in a market in the near term, then that’s kind of a red flag for me. Or cap rates compressing is another thing. Right now I would say more flat and I’d want to understand why they were doing that. So those are two metrics that I think are valuable to look at and to know if someone’s overspeculating.

Freddie Steen (08:43)
Love it. Don, you’ve given great advice to passive investors throughout your whole career, two decades and more, telling them to stop just looking at the projected returns on a pitch deck and instead ask the sponsor what has to happen for these returns to become reality. For your own portfolio at Next Level Multifamily, when you bring in busy professionals looking for passive income, what is the “what has to happen” operational blueprint that your company relies on to ensure those returns actually hit?

Don Goff (09:17)
Yeah. So I’ve been mostly partnering with my former students so I get to know—because I know them very well, coaching them for over a year and so forth. So I leverage off a lot of the materials that they have in research, but I do obviously my own as well. But you know, the main thing is I wanna show them how it’s operating today and let them know—I do talk about risk. A lot of people raising money out there don’t talk about risk. And I think it’s very important because everything has a risk. You’re not gonna get double-digit returns or double-digit projections without any risk, right? There’s no investment that I’m aware of that’s like that. So you always want to go over the best case and maybe, though you don’t know the worst case, what would happen on a conservative side or a little bit more aggressive side and show them the difference. So what you want to look at is, say, this is why I believe we’re gonna hit these numbers: because the job growth going into the area, showing them where the rents are now and what we’re seeing as far as growth’s gonna go with rent. Like I said, in some areas you can’t show growth right now, but it might not be the value play. I personally like value-add properties where you can make changes to the units that have been more classic-style units and you can upgrade them because that’s realistic. Meaning, if say you bought a property—these properties I really, really love—where someone did 30% of the units, they’re showing you a higher rent that they’re getting for those units right now, it’s proof of concept. So that’s what I love to be able to show investors as well, that hey, they’re already getting this amount of rent, $150, $200 more because they changed it from a classic, did upgrades to it, and are getting this rent. So it’s proof of concept. So those are the sort of things in the numbers that I want to go through with them and show them how I did my projections. Why am I using a certain cap rate for the projection five years from now? Where did I get that data and what market data? Because, you know, no one has a crystal ball, right, Freddie? I mean, we can only go—we have different reports, third-party reports, some of the reports from the main brokerage firms, and we use, you know, kind of look through all of that to really understand or to help us to project what’s going to happen in the future.

Freddie Steen (12:10)
Love it. Don, for real estate pros that are new to the Real Estate Pros Podcast, Investor Fuel Podcast, that are focusing and thinking about going into multifamily properties, I just want to talk real quick and get a knowledge share from you on single-lotted concessions. For our newer listeners, it refers to offering a one-time specific concession across an entire asset or portfolio, such as giving one month of free rent across all 50 units in a newly constructed building to accelerate lease-up. I wanted to ask you, Don, the absorption versus NOI dilemma—I mean, when you launch a lease-up and offer a one-time upfront concession in multifamily across an entire property, how do you balance the aggressive push for rapid absorption with the negative impact it has on your net operating income when trying to secure permanent financing?

Don Goff (13:06)
Sure. Well, that’s more a development. So if you’re trying to secure—a lot of the properties that I am in have permanent financing going in because we get stabilized properties. I do have one development that I’m partnering on right now, and it’s more at the beginning phase. We took over a 324-unit building for $30 million under market from a developer, yeah, and that’s what we’re kinda going through now, so it’s funny you asked that question. But, you know, typically you’re gonna have 18 months of lease-up to be able to get it up to a point to get that permanent financing. And you have to know the numbers going in. You know, when you’re getting into the product, you have to know what are the concessions and factor that in. You are gonna have these concessions, assume a slow burnoff of those concessions, that you still might have to. Maybe if it’s eight weeks right now you’re giving someone, maybe it’s gonna be four. It’s not gonna go eight weeks to zero in a year, but you’re going to—you have to factor, and you’re gonna expect a low NOI for at least the first year or during that lease-up stage. But after you get first—that first 12 months of lease-up, and new development’s not my expertise, but I obviously, like I said, I am in a property that’s on it—that’s what you wanna do in that first year is get it filled, you’re getting good reviews, you’re getting people that wanna live there and getting some traction in there. And then, but you have to know at the point that you’re going to actually—you know, when can you transition to cut those concessions back? That’s really gonna depend on how strong the market is, Freddie. So that’s important. No, it’s all about knowing your market, correct, what your competition’s doing. And so that way you can get your numbers up to the point—what’s your break-even point, right? What do you need to hit the debt coverage ratio so that you can get—what’s the requirement? So before you even buy the property, understanding from the lenders, what numbers do I need to hit in 18 months to get that permanent financing, you know, so that way you can reverse engineer it, right? So that way you really know, hey, is this feasible on a conservative level? Because that’s one of the biggest risks is new development, because you don’t know, right? It’s empty. Where at least if you have a track history on some of the stabilized properties, which is what I mostly focused on for 20 years, then now you have a history of how the property’s performed and what it can do.

Freddie Steen (15:25)
Don, a lot of real estate pros that are listening right now sometimes deal with what I call the operational cliff. You know, once that initial single-lotted concession period ends, as you spoke of, 12 months, 18 months, and tenants hit their first renewal cycle at the true market rate, what specific tenant retention or client strategies do you deploy to prevent a mass exodus of residents who were only attracted by the initial discount?

Don Goff (15:54)
Great, great, great. Just funny, I was talking to the asset management team the other day because I had some questions on what they were doing, because they were doing some things a little bit differently than I was doing. Really good management company that we have on board. And so, you know, if you wait to the end, like if you amortize it over the whole twelve months, then yeah, you’re gonna have some challenges when you go to do the renewal on that and to get them to commit or to bump them up to the higher rate. You also don’t want to be the opposite, like Goldilocks almost. You know, you don’t want to go that way. You also don’t want to give two months up front free because you have no revenue coming, especially in these primary markets where there’s a ton of new development, everyone’s giving concessions. So one of the strategies that we’re using or we like to use is giving so much off, like maybe 50% off for X amount of months, but not for the whole cycle, not amortizing the whole time, because then they’re still locked into the lease. You still have their first or last month’s rent or the security and all the deposits that they have to make up front. And no one’s gonna want to move again in four to six months, right? So having that concession there, knowing what it’s gonna bump up to and during that time frame of what the market rate’s going to be. So that’s kind of how we’ve been positioning it. But also staggering the leases, that’s the other thing I want to mention, staggering the leases so you know you’re not having everyone end at the same time, right? And if you are giving concessions, try to get people to sign up for longer leases. So yeah, we’re gonna give you this concession, but cause you want them in the property longer if you’re giving concessions. So those are all the things, but it’s a balancing act. It’s not easy, you know, and you’re trying different things, but those are some of the strategies that we’ve been using along the way.

Freddie Steen (17:44)
Don, this podcast today is bringing our real estate pros the sizzle for sure. I think we’re cooking with hot grease. Would you agree?

Don Goff (17:51)
Yeah, I love it. I love sharing the knowledge and I love what we’re discussing. So yeah, no, I—you know, it’s all about getting into the detail. A lot of people talk surface level, but I love how you’re getting into the details of the questions so people can actually learn some techniques to use out there.

Freddie Steen (18:08)
Don’t threaten me with a good time. Let’s get into the deeds. Every operator I know has a moment where things got real. Yeah. Maybe a deal that went sideways or a time that they had to pivot fast. You mind sharing one of those moments?

Don Goff (18:24)
Sure. Sure. Well, you know, on most of the properties that I’m in, I’ve been a fundraiser. I haven’t been the actual operator of the properties. I’ve done fund of funds and so forth on that, but I’ve been involved in properties where that happens because, you know, not everything’s all sunshine and rainbows. And that’s really important with who you’re partnering with, whether you’re going in and you’re learning this just to be an LP investor and you’re looking to get in passively, then you really want to know the operators act in good faith and so forth. But some things can’t be predicted. And the biggest thing is communication. And I’ve seen along the way, even some of my newer students that got involved and they’re like, “I can’t have my investor call this week. This is what’s going crazy.” You know, we go and I said, “You’re having it. You have to have it. Because if you don’t go, people’s minds are gonna get all swirly and not know what’s going on.” But so a couple of things that you need to do is first communicate with people as soon as you find something’s going on. It could be a management company that happened to us that wasn’t performing or wasn’t—biggest thing I see is APs not telling you about the accounts payable and there’s some surprises. But communicating with investors first of all, so that way you’re again, you’re mitigating, hey, we found this issue, and tell them the solution, what you’re gonna be focused on on it. And then, you know, the sponsors I deal with have reserves in place. So if sometimes things don’t go right, they can cover it if it’s some of the mistakes, so that you don’t have to do capital calls on a property, ’cause that’s not ideal for anybody, right? So if you have those reserves, that might take place, but you might have to stop distributions, explain it in a constructive way to investors, and what you’re doing to get it back on track. And that way people don’t get worried and think worst case.

Freddie Steen (20:41)
Curing investor stagnation with structural action. A recurring theme in your videos is that investors rarely get stuck because they lack information. They get stuck because they lack structure and accountability. You built Next Level Multifamily around taking the guesswork out of the equation for business professionals. And for a real estate pro, an active investor listening who is currently paralyzed by high interest rates or market shifts, what is the exact piece of organizational structure they can implement today to get back into forward momentum?

Don Goff (21:16)
Yeah. Well, number one is mindset. You know, get your mind straight and always be developing that. I do it, and one of the things that I really focus on is a mastermind of *Think and Grow Rich*. And just because you can use other ones, but it’s just getting the mindset right of what’s going on, being connected with other investors that are out there, and being part of different organizations, you know, being plugged in is a huge part of it, because then you get to talk about it, see what’s going on. But what you can implement right now is really doing the do, stay the course, because a lot of people are not staying the course, right? Because like you just said, interest rates are making this excuse, that excuse. The people that stay focused now are the people who are gonna be ahead of everybody else because you’re building your relationships with your brokers, you’re staying in communication, you’re underwriting deals. How are you gonna identify when the market shifts or a good deal? Or how are you gonna stay front and center? If you wait three months or take three or four months off and say, “I’m just gonna wait, there’s nothing out there,” you’re four months behind everybody else. So just know that. Stay the course doing you and you could get a gem along the way, but don’t get frustrated with it. Keep on doing it because if you’ve just analyzed five, ten, fifteen deals, you’re gonna know when things start to change before everybody else. You’re gonna identify the good deals faster. So keep underwriting and keep doing that. And sometimes maybe get a coach, get someone to have accountability and structure in there. I know for what I’ve coached for the last—the structure we had the last 20 years is checking in with someone every two weeks. Are you doing the do? Are you doing the metrics? That’s what you get to ask you. A lot of people think they’re busy or they think that they’re productive. I always tell my clients, let’s take “busy” out of the equation. There’s no more busy. It’s not a priority. I want you to start talking to yourself that way, right? But anyway, yeah, so get out there, continue to do the do, stay plugged into whatever groups you’re in so that way you have that support team behind you. And then if you need extra support on top of that, or you wanna navigate or have someone with more experience than you, then you’re gonna wanna plug in with someone and do a coaching program or whatever, so you can have that accountability every two weeks. So you’re making sure you’re doing what you’re doing or you’re supposed to be doing.

Freddie Steen (23:28)
Yeah, relationships are everything in—that’s the kind of stuff people don’t talk about enough. And honestly, it’s what separates the folks who just dabble from the ones who stay in the game long term like you. Don, let me ask you this. What are you most focused on solving or scaling next at Next Level Multifamily? And what’s the next real goal for you?

Don Goff (23:47)
Yeah, great. What I’m looking to scale right now is actually buying. I’ve recently partnered with one of my students from ten years ago—twelve, I think it’s twelve years ago now—named Maureen Miles. And she’s been an operator since then, done thirty-seven hundred units. So I’m partnering up with her now that I’m back on the market after twenty years on actually doing deals, getting ready for this next cycle, because it is an exciting time right now. And that’s the opportunity I’m focused on. But we’re also focusing on education as well, launching our education business including Next Level Multifamily because of my coaching experience, my underwriting experience, and bringing that all together with her operations. So we have one package for people that are looking to invest passively or people that are looking to actually get out there and learn the business. So I’m super excited about that and the upcoming months ahead. And that’s my main focus is building that education company, taking my 20 years of experience from education and coaching, combining it with her operational experience, and it’s gonna be something exciting we really can offer people.

Freddie Steen (24:50)
That’s big. I mean, especially when you’ve already got the underwriting, the capital raising, and now the coaching in place. I mean, the next move can either compound things or create chaos, depending on how you play it. Now, I know a lot of people listening are either earlier in their journey or looking to level up like you, Don. And I think they’d benefit from hearing this. When it comes to building relationships and growing your network, what’s made the biggest difference for you?

Don Goff (25:19)
Yeah, the biggest difference for me is always doing what you say you’re gonna do, being a service provider, thinking of the long term, not the short term, and aligning with people. Align with—that’s why I’ve been aligning with someone, like I say, I coached 2,000 people, I’ve only aligned with like three or five along the way, right? Because you’re gonna be in alignment with those people and leverage off—find people that you have harmony with, that you have similar goals with, and so forth. But the biggest thing is doing what you say you’re gonna do, go out there meeting people. One of the biggest things, like you talked about, Freddie, is the relationship part of the business. If you’re not talking to people, you’re really not—even as with underwriting, you’re still not doing the business. You need to be talking to brokers, you need to be talking to investors. And even what I’ve been doing more now that I’m getting more on the operation side, because I had done operations for a while, then I got really heavily into education. Now I’m coming back and doing operations and education, putting it all together again. But even peers, like aligning yourself with some key other people that are out there doing what you do and you can collaborate and share what they’re seeing in different markets as well. That’s really important too.

Freddie Steen (26:26)
Can you explain how important it is what you just spoke about with the relationships, and how not doing that could affect the success of your business?

Don Goff (26:36)
Yeah, you’re not gonna be great at everything, right? Know your wheelhouse. I tried to be great at everything at the beginning, and everyone has a gift, everyone has a specialty. Mine’s engineering. So my core root is underwriting, and that’s systems-based. So everyone that I partner with are visionaries. They have a different personality, they have things that I’m lacking. I have some vision, I’m about one-third, I would say, entrepreneurial, but I’m more of the implementer, the strategist, and how can we optimize engineering, right? How can we optimize and make it better? But one thing that you always want to come back to with all these people and setting expectations is huge with anyone that—and that’s one of the reasons why I’ve been able to form great relationships with folks along the way, and I’ve coached so many people, because I’ve set expectations. This is what it is, this is what it isn’t. And for the long term, whether good, bad, or ugly, everyone knows where everyone stands. Everyone can be happy at the end of the day because they know what to expect and what they get out of it. ‘Cause sometimes things can get, with relationships, especially with me with coaching, you have some salespeople will say certain things and be overoptimistic, and then the coaches are gonna have to fulfill. So I make sure we set an expectation. But let me get back to your question, Freddie, and that’s really to first of all align with people. Always do what you say you’re gonna do. Don’t be a pain in the butt. Focus on your strengths. What can you bring? What value do you bring to the table? And everyone has value in different ways. And I would say those are—but think long term, not short. It’s not the first buck, you’re thinking about the last buck. And that’s how things come around ten, twelve years later. I’m partnering with people because you build a good reputation out there.

Freddie Steen (29:00)
Yeah, you can’t fake that. I mean, relationships are everything in this space. All right, before we wrap, Don, at Next Level Multifamily, what is your sweet spot right now?

Don Goff (29:11)
What’s my sweet spot? So my sweet spot is mentoring because I can mentor under—I have my own underwriting platform, three-month program for people to learn underwriting. And like I said, that’s my expertise being an engineer, fund of funds doing that. So the educational level, it’s either education or people looking to invest passively are my two wheelhouses that I’ve been focused on and growing. And so I would say that’s the most value. Anyone that’s looking—when I say Next Level, you don’t have to have a lot of experience, right? So Next Level is Next Level wherever you are, Freddie. If you’re starting, I want to get you to the next level because I’ve coached everyone from the beginning of starting a new business to the end. If you’re an LP investor and you want someone to be kind of a liaison as you’re learning and investing, then I’ll take that to the next level. Or even people that have been around the industry for a while. I’ve coached people along the way that had twenty years more experience than me, but it still became more collaborative for them and more sharing ideas. Some things they knew more about than I did on specifics, but you did that. So it’s always about getting to the next level on wherever you’re at.

Freddie Steen (30:16)
Well, this podcast has been sizzling from start to finish. If someone wanted to reach out, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

Don Goff (30:27)
Yeah, the best way is to go onto my website and it’s NL for Next Level, so that’s easy to remember, nlmultifamily.com. And I have it laid out so that way because people are interested in different things, whether it’s one-on-one coaching, whether it’s underwriting, or being a passive investor, an LP in one of my funds, then those are the three options you’ll see. It’s again NL for Next Level, so nlmultifamily.com is the best way and you can book a time to talk to me on there. There’s an email on there, so you’ll be able to reach out if you’re looking for more support.

Freddie Steen (31:04)
Perfect. Well, listen, I appreciate your time and your story and definitely your perspective. Don, we need more people in this space who are doing it the right way. And our Real Estate Pros audience and I thank you again for being here.

Don Goff (31:18)
Well, thank you for having me. It’s been a pleasure. I always love sharing my knowledge and, you know, that’s one of my purposes, my definite major purpose for those of you that in *Think and Grow Rich* is to be of service to people. That’s why I love what I do, I get fulfilled, and that’s why I took the route of education for a while because I just loved it so much and I was really fulfilled.

Freddie Steen (31:38)
For those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming with operators just like Don Goff, who are out there like Next Level Multifamily building real businesses. We’ll see you on the next episode. Thank you, Don.