I have to admit, this is not an easy article to write.

(After all, I wrote a book where I extolled the virtues of investing in multifamily real estate. And I spoke about multifamily on the BiggerPockets Podcast recently.)

This isn’t easy. But it’s necessary.

My company was formed a few years ago to take advantage of the wonderful demographic shifts underlying the growth in multifamily housing. Apartments have been booming since the middle of the recession, and my partner and I dedicated our lives to making the most of this opportunity and sharing it with others.

Our last multifamily project was oversubscribed with $3.8 million from investors in a matter of days. We love multifamily, and our investors do, too.

But overall, we have failed our investors.

I love talking with investors. I continue to talk with many of them weekly, and one of the questions that I haven’t been able to answer is, “When will you have another deal for us to invest in?”

I have had to say “I don’t know” more times than I can count.

When my partners and I started our company, we made a commitment to ourselves, our families, and our investors that we would never knowingly overpay for an apartment asset just to get a deal.

We are all in our mid-50s, and we’ve made a lot of money in our careers. But we’ve lost money, too. We know what it’s like to be on both sides of the table, as a sponsor and an investor.

Thankfully, we’ve made a lot more than we’ve lost. But we never want to be in a position of apologizing to our investors, our families, and ourselves—for up to a decade—for a deal we overpaid for.

The multifamily sector is overheated and sponsors are overpaying for deals on a regular basis.

Related: How to Know if You’re Investing in the Wrong Real Estate Market

Wait—Why Would Anyone Overpay for a Multifamily Deal?

Why are other people buying deals that we are passing up?

We don’t know most of them, but here are some potential reasons:

  • They have tax-deferred 1031 exchange funds, and they would rather overpay than pay Uncle Sam.
  • They have international investors who will accept a very low return just for the perceived benefit of being in the U.S. dollar rather than their currency.
  • Institutional investors are looking at smaller deals and smaller markets, and they are willing to live with much lower steady returns.
  • Operators are ignoring low cash flow and counting on appreciation to fix everything. (Didn’t we all learn how well that didn’t work in the Great Recession?)
  • Less experienced syndicators with access to funds are mistakenly overpaying.
  • Less than scrupulous operators are doing deals to make the acquisition fees.

However, I want to be clear that not everyone who is buying apartments is overpaying, inexperienced, or unscrupulous!

I’m not saying that at all. (Some of them just have better access to off-market deals than us. But I will say that we are looking at off-market deals, too, and most of them are just as overpriced as the marketed deals.)

I am saying that we have looked at over 190 deals since January, and though we’ve made offers, we’ve come up…