Questions to Ask When Buying a Multifamily Property
For investors running diligence on an apartment building. These 20 questions cover the rent roll and trailing twelve months, loss to lease and turnover cost, utility billing, payroll, capital needs, taxes and insurance, existing debt, and the access you need before closing.
The questions
Open any question for the note
What is physical occupancy today, and what is economic occupancy after concessions, bad debt and non-revenue units?
Why ask it
A building can be 95 percent physically full and collect far less, because of a free month given at signing, a model unit, an employee unit and two residents who have stopped paying. Ask for both numbers and the bridge between them, since the gap is where broker marketing usually rounds in the seller's favor.
May I see a current rent roll showing lease dates, rents, concessions and delinquency by unit?
Why ask it
Unit level detail exposes what a summary hides: a cluster of leases all expiring in the same month, three units rented well below the rest, or a resident with a growing balance nobody has acted on. Ask for the report straight out of the property management software rather than a spreadsheet.
May I see the trailing twelve months of income and expenses, month by month?
Why ask it
Annual totals smooth out exactly the things you need to see: a winter heating bill, a month of high turnover, a repair that has been reclassified as capital. Twelve columns also let you spot expenses that stop appearing a few months before the listing went live.
How far are in-place rents below what new leases are actually signing at?
Why ask it
This gap is the upside most sellers price into the asking figure, so you need to know whether it is real. Ask for the last ten signed leases with dates and rents, because the rent a broker says the market supports and the rent a resident actually signed are often different numbers.
How many units turned last year, and what did an average turnover cost?
Why ask it
Raising rents means losing residents, so turnover cost is the price of your own business plan. Ask for paint, flooring, cleaning, appliances, leasing commission and the days the unit sat empty, and note that a building with high turnover will not deliver the rent growth on a spreadsheet that assumes it stays full.
What is the unit mix, and how many units are currently offline or down?
Why ask it
Down units are sometimes an honest renovation program and sometimes a leak nobody has fixed since last spring. Ask why each one is out, how long it has been out, and what it will cost to bring back, then walk into every one of them.
How are utilities handled: master metered, submetered, or billed back to residents?
Why ask it
A master metered building means every rate increase lands on your expense line with no mechanism to recover it, and retrofitting submeters is a permitted capital project. If there is a billback program, ask what percentage of the billed amount is actually collected, because it is rarely all of it.
What does staffing cost here, and what is covered inside the management fee?
Why ask it
On-site managers, maintenance technicians, part-time groundskeepers and their payroll taxes and benefits are often understated when an owner does the work themselves. Ask what a third party manager would charge and what sits outside that fee, since construction oversight and leasing commissions usually do.
What capital work has been completed in the last five years, and what do you know is coming?
Why ask it
Invoices tell you what has been spent and, by omission, what has not. A building where nothing large has been replaced in fifteen years is not a bargain, it is a schedule of roofs, boilers and parking surfaces you are about to inherit at once.
What condition are the roofs, heating plant, electrical service, sewer laterals and parking surfaces in?
Why ask it
These are the items that cost enough to change your return and that a cosmetic walkthrough will not reveal. Ask for the age of each, then have the sewer laterals scoped on camera, because a collapsed lateral under a parking lot is a five figure repair with no visible warning.
What has insurance cost for each of the last three years, and what claims have been filed?
Why ask it
Premiums on apartment buildings have moved sharply in many markets, and the seller's expiring policy does not transfer to you. A loss history with repeated water claims can also make coverage expensive or hard to place regardless of what you pay for the building.
What are the property taxes now, and how will this sale affect the assessment?
Why ask it
In many jurisdictions your purchase price becomes the new assessed value, so a long time owner's tax bill is not the one you will pay. Call the assessor with the parcel number and model the reassessed figure, since this single line has broken more deals than any repair.
Is the property subject to rent regulation, an affordability covenant, or a tax abatement with conditions attached?
Why ask it
Regulated rents and recorded affordability covenants limit the rent growth your whole model may depend on, and they survive the sale. An abatement can also expire or require continued compliance, so read the recorded documents rather than accepting a summary.
What is the zoning, and is the current unit count conforming?
Why ask it
A legal nonconforming building can usually keep operating but often cannot be rebuilt at the same density after a major loss, which changes both your insurance requirements and your exit. Get the answer from the zoning office in writing rather than from the offering memorandum.
Are there any environmental issues: underground tanks, asbestos, or lead paint records?
Why ask it
Older buildings often had oil tanks that were abandoned rather than removed, and a leaking tank is the property owner's problem no matter who installed it. Lender required environmental screening exists for this reason, so order it early rather than a week before closing.
What are competing buildings nearby charging, and what concessions are they offering right now?
Why ask it
Call three comparable properties as a prospective renter and ask what is available and what the move-in special is. Advertised rents with a month free are not the same as achievable rents, and this ten minute exercise regularly contradicts the market study in the marketing package.
What debt is on the property, and is it assumable or prepayable, and at what cost?
Why ask it
An assumable loan at a below market rate can be worth more than a discount on price, while a prepayment penalty or defeasance cost can quietly become the seller's reason for holding firm. Ask for the loan documents, not a description of them.
Why are you selling, and how long have you owned the property?
Why ask it
A partnership reaching the end of its fund life sells on a timetable, which gives you leverage a retiring owner does not. Someone selling three years into a value-add plan usually hit something: taxes, insurance, a regulatory change, or rents that did not follow the projection.
May I inspect every unit, and will you provide tenant estoppel certificates before closing?
Why ask it
An estoppel is the resident confirming in writing what they pay, what deposit they gave and what side agreements exist, which is the only real check on the rent roll. Interior access to all units is where you find the unpermitted work, the pets nobody declared and the leaks that never got reported.
Are there any liens, open permits, code violations or pending lawsuits?
Why ask it
An open permit from work finished years ago must be closed before you can pull your own, and unresolved violations can carry daily accruing penalties. Pull the address history at the building department and the court records yourself instead of relying on disclosure.
Verifying a Multifamily Deal
Practical guidance for the conversation itself
How to Verify the Income
Tie the rent roll to the bank statements
Take three non-consecutive months, add up the deposits into the operating account, and compare them to what the rent roll says should have been collected. Persistent shortfalls mean concessions, delinquency, or units listed as occupied that are not. This reconciliation takes an afternoon and it is the single most useful thing you can do with the seller's paperwork.
Send estoppels to every resident
An estoppel certificate asks each resident to confirm their rent, their deposit, their lease end date and any promise the landlord made. Residents routinely report a rent lower than the rent roll, a deposit the seller has no record of, or a verbal agreement about parking or a pet. Every discrepancy is either a price adjustment or a credit at closing.
Shop the competition yourself
Call or visit three comparable buildings as a renter, not as a buyer. Ask what is available now, what the rent is, what the move-in special is, and how long the last unit like it took to lease. Ten minutes of this is worth more than any market summary, and it tells you whether the loss to lease you are paying for is achievable.
How to Rebuild the Expense Side
Build expenses from bills, not from the seller's statement
Collect the actual invoices: tax bills, insurance declarations, twelve months of every utility, trash, landscaping, snow removal, pest control, payroll registers, and the repair ledger. Then add the lines a seller's statement usually omits: management at a market fee, an on-site payroll you will have to pay even if they did not, and a per-unit capital reserve based on actual system ages.
Reassess the taxes at your purchase price
Ask the assessor how a sale is treated in that jurisdiction and what the new assessment is likely to be, then put that number in your model rather than the seller's current bill. In markets with regular reassessment on transfer, this adjustment alone can move net operating income enough to change the price you should offer.
Get your own insurance quote during diligence
Give a broker the address, unit count, year built, roof and wiring type, claims history and construction class, and ask for a real quote. Sellers who bought coverage years ago often carry premiums no new buyer can obtain, and in some markets the difference is large enough to break the deal.
Separate repairs from capital honestly
Owners preparing to sell have an incentive to move recurring repairs into the capital column, which flatters net operating income. Read the general ledger detail rather than the summary, and reclassify anything that recurs annually back into operating expenses before you value the building.
Red Flags in Multifamily Diligence
- Deposits into the operating account that consistently fall short of the rent roll.
- Refusal to allow interior access to every unit, or a list of units that cannot be shown.
- Estoppels that come back reporting rents or deposits different from the rent roll.
- A repair line that drops sharply in the twelve months before listing.
- Down units with no written explanation of why they are down or what they cost to restore.
- An offering that projects rent growth without any recent signed leases at those rents.
- A tax bill based on an assessment far below the asking price in a jurisdiction that reassesses on sale.
- Deferred maintenance concentrated in roofs, sewer laterals or electrical service, which are all expensive and all invisible from the parking lot.
Who You Need on the Deal
- 1A real estate attorney licensed in that state to read the purchase agreement, the recorded covenants and any loan documents you might assume.
- 2A commercial inspector plus specialists for the roof, mechanical plant and a camera scope of the sewer laterals.
- 3A local property manager to price payroll, turnover and achievable rents against buildings they already run.
- 4An insurance broker quoting the actual property, early enough that a hard placement does not surprise you at closing.
- 5A lender who will tell you what their appraisal and environmental screening are likely to find before you spend money on either.