If you’ve invested in multifamily real estate over the past few years, you’ve probably heard whispers (or loud conversations) about deals running into trouble in 2025. Why is this happening when apartments have historically been one of the most stable and resilient asset classes?
Here are six key reasons multifamily properties are facing distress this year — and what you, as a passive investor, need to know.
1. High Interest Rates and Debt Maturities
Many properties purchased between 2020 and 2022 were financed with low, floating-rate debt or short-term bridge loans. Now, as those loans mature, owners are being forced to refinance at double or even triple previous interest rates. In some cases, refinancing isn’t even possible without bringing in significant new equity — creating tough choices for owners and investors alike.
2. Exploding Insurance and Operating Costs
Insurance premiums have skyrocketed, particularly in states like Texas and Florida, where natural disasters and limited insurance markets are driving prices up. Add to that rising property taxes, maintenance, and payroll costs, and many properties are seeing their operating expenses rise much faster than rent growth, compressing investor returns.
3. Aggressive Underwriting During the Buying Frenzy
Let’s be honest: many deals acquired in 2021-2022 were overpriced based on overly optimistic rent growth projections and exit cap rate assumptions. Now that rent growth has cooled and exit cap rates are higher, those numbers no longer pencil, leaving some sponsors struggling to meet projections — or even cover debt payments.
4. Flat or Declining Rent Growth in Some Markets
Markets that saw explosive rent growth after COVID (like Phoenix, Austin, and Atlanta) have now experienced stagnation or declines as affordability limits are reached and tenants resist higher rents. Without rent growth, value-add plans fall short, and cash flow suffers.
5. Oversupply from New Construction
Thousands of new units that were started during the boom years are now hitting the market, especially in the Sunbelt. This surge in supply creates more competition, forcing landlords to offer concessions and rent discounts to attract tenants — which cuts into profits.
6. Eviction Backlogs in Certain Markets (Like Atlanta)
In some markets, like parts of Atlanta, court delays and eviction backlogs have made it difficult to remove non-paying tenants. This puts additional pressure on property cash flow and can keep occupancy numbers artificially high while rent collections remain low. It’s a hidden factor affecting performance in specific areas that investors need to be aware of.
What Should Passive Investors Do?
If you’re evaluating new opportunities, focus on deals with conservative assumptions, ample reserves, and smart debt — financing that gives the property enough time and flexibility to succeed without being forced into a bad refinance or sale.
Also, focus on the story. Why is this a good deal? Why is the seller motivated to sell? What’s the plan to create value? Because in the end, we’re not just buying properties — we’re buying stories. But those stories still need the numbers to back them up.
Conclusion
The challenges facing multifamily real estate in 2025 stem from rising interest rates, increasing operational costs, aggressive underwriting, stagnant rent growth, oversupply, and eviction delays. Passive investors should focus on deals with conservative financial planning, strong reserves, and flexible debt structures. Evaluating the investment’s long-term potential and ensuring the numbers align with the narrative is key to navigating the current market conditions successfully.
