Why a Full, New Workforce Apartment Building at a 6 Percent Cap Still Did Not Pencil
Some listings fail because the information is thin. This one failed even though the information was good.
The property was a recently completed 28 unit community in a large Texas metro. Two bedroom units of about 750 square feet, built for working households, a short drive from downtown and near a grocery anchor, parks, and a golf course. Fully occupied. The marketing package included a full year of actual income and expenses, not a forecast, and net operating income that produced a 6 percent return at the asking price.
For a new building with real trailing numbers, that is a reasonable place to start. It is also where the most common mistake in small multifamily underwriting hides in plain sight.
The seller's tax bill is not the buyer's tax bill.
One line on the operating statement
The trailing statement was clean. Rent near $1,130 per unit. Minimal vacancy. Operating expenses that looked modest, which is typical for a brand new building with no deferred maintenance yet.
The property tax line reflected the building's current appraised value. That appraisal was about two thirds of the asking price.
In most Texas counties, the appraisal district revalues property regularly, and a sale at a materially higher price becomes strong evidence of market value. A buyer should expect the assessment to move toward the purchase price, and the tax bill to follow. Texas has no state income tax, and local property taxes do a great deal of the work. Effective rates in major Texas metros commonly run well above 2 percent of value.
At this property's own current effective rate, reassessing the building close to the asking price adds roughly $1,000 per unit per year in taxes.
What happens to the return
We rebuilt the operating statement the way a buyer would own it:
- Taxes reassessed near the purchase price, at the property's current effective rate
- Professional management at a market fee, even though the seller's statement did not show one
- A modest annual capital reserve, even for a new building
Nothing else changed. Rents stayed where they were. Occupancy stayed full.
The return fell from 6 percent to the mid 4s. At conventional leverage, the property would not cover its debt service, well short of the 1.25 coverage we require.
This is not a knock on the building. It is new, well located, full, and serving exactly the kind of workforce tenant we like. It is simply priced on the seller's cost structure instead of the buyer's.
The market appears to agree. The property had been listed for well over a year.
Why this matters more at small scale
On a 300 unit institutional asset, a tax reassessment is modeled by a team of analysts before anyone discusses price. On a 10 to 40 unit building, the seller is often a developer or local owner, the marketing package is a few pages, and the trailing statement shows whatever the seller actually paid.
That is not deception. It is what the seller experienced. But a buyer who capitalizes the seller's tax bill is paying for a cost advantage that disappears at closing.
New construction adds a second layer. A building appraised partway through construction, or during its first year, can carry an assessment well below its finished value. The next appraisal catches up whether the property sells or not.
Our rule
Reassess taxes at the purchase price before calculating any return. If the deal only works on the seller's tax bill, it does not work.
Before we believe a return on small multifamily, we check:
- Taxes reassessed at the purchase price, not the seller's appraisal
- The appraisal district's history for the parcel, including any partial year or construction value
- Insurance quoted for the actual building, roof, and region
- Management at a professional fee, whether or not the seller self manages
- Capital reserves appropriate to the building's age
- Debt service coverage of at least 1.25 on those adjusted numbers
- Days on market, and why
If the property still works after all of that, it is worth pursuing aggressively. If it only works before, the price needs to move.
Bring us the building with real numbers
Draymoor Ventures is seeking stabilized workforce multifamily properties of 4 to 70 units in growing, business friendly markets across the Texas Triangle, the Arizona Sun Corridor, and the Colorado Front Range, with a preference for smaller cities over the anchor metros.
We are especially interested in owners ready to share actual operating history, long time owners considering succession, and sellers open to financing a portion of the sale. We are a permanent hold buyer, and we underwrite the costs we will actually carry.
Share an opportunity: Steven@DraymoorVentures.com
Sources
- Deal facts are drawn from a publicly marketed offering reviewed by DV in September 2026 and are intentionally generalized. The property, seller, and broker are not identified.
- Texas Comptroller, Property Tax. Background on the Texas property tax system and the role of local appraisal districts. https://comptroller.texas.gov/taxes/property-tax/