How to Spot the Real Risks Behind a Deal

In multifamily investing, strong returns are made not by what you buy, but by what you avoid. After evaluating numerous apartment buildings across Canada, I’ve learned that properties that look attractive on paper often conceal costly structural and operational issues. To be successful, you need to have a disciplined approach to acquisitions by looking beyond surface-level metrics like cap rate and rent roll. Your focus should be on uncovering the underlying risks that can erode value over time.

One of the first things we assess is the condition of the roof and the structure itself. A deteriorating roof is not just an eyesore, it’s a financial liability that can compromise the integrity of the entire building. Water damage, mold, and insulation failure can quickly follow if the roof is past its useful life. When a seller says a roof was replaced fifteen years ago, yet inspection photos show advanced wear, that discrepancy needs to be reconciled. The same applies to foundations. Visible cracking or shifting isn’t something to overlook. Always ask for specialist reports when foundation issues appear, because small structural movements can evolve into major capital expenditures if left unresolved.

Water infiltration is another silent destroyer that demands close attention. In older multifamily properties with wood and brick construction, water exposure can lead to rotting beams, mold, and long-term structural degradation. When inspection reports mention infiltration or moisture in units, it’s important to determine whether these are historical problems that have been properly repaired, or ongoing issues that will continue to worsen. Evidence of water damage in multiple units suggests a systemic problem rather than an isolated leak. These conditions also have broader implications: they can affect tenant health, drive turnover, and increase insurance premiums.

Electrical safety and deferred maintenance often reveal how a property has been managed. When we see electric heaters installed too close to bathtubs or exposed wiring in units, that immediately raises questions about code compliance and management oversight. Safety hazards like these must be corrected before closing or included in the renovation plan, as they can pose serious risks and delay financing approvals. Deferred maintenance in general, especially when spread across many units, is a sign that ownership has been reactive rather than proactive. It often means a multi-year capital plan will be needed to bring the property up to standard.

Tenant turnover and legal compliance also tell an important story. A building with frequent tenant movement may be struggling with poor maintenance, noise, or management issues. On the other hand, a property with very low turnover might have rents far below market value, creating a long-term growth challenge. In Quebec, it’s essential to understand the status of TAL and RBQ compliance before acquiring a property. Outstanding tenant complaints, building violations, or unaddressed maintenance orders can complicate transactions and delay refinancing or repositioning efforts. Always ask whether there are open TAL files, recent evictions, or pending maintenance issues with the RBQ. These details, while sometimes overlooked, can make or break the economics of a deal.

Ultimately, due diligence is about understanding the story behind the numbers. Every inspection photo, maintenance invoice, and tenant record contributes to a fuller picture of the property’s condition and management history. True value creation in multifamily investing comes from identifying these risks early, addressing them efficiently, and operating with transparency. A building is more than its financial statements, it’s an amalgamation of structure, systems, and people.

In today’s market, where older assets dominate and construction costs continue to rise, disciplined underwriting is not optional. It’s the only way to preserve investor capital and achieve sustainable long-term performance. Whether it’s confirming the roof’s age, reviewing electrical safety, or understanding the tenant base, every question asked during due diligence serves a purpose. It protects both the investor and the integrity of the property.

The right multifamily acquisition is built on information, not assumptions. Careful questioning, thorough inspections, and a willingness to walk away from risky deals define successful investing.