Apartment Building Due Diligence Checklist for Buyers
By the time a buyer signs a purchase agreement on an apartment building, they have usually toured the property, reviewed an offering summary and talked with the seller or broker about the residents. Apartment building due diligence is where those impressions are tested against leases, bank records, inspections, title work and compliance files. A careful review helps buyers confirm what they are paying for and gives lenders the information they need.
This checklist is general guidance for buyers of existing, stabilized multifamily properties. It is not exhaustive and does not address construction or renovation projects. Landlord-tenant, rent regulation, fair housing, environmental and building code rules vary by state and locality, so buyers should work with qualified attorneys, accountants, inspectors and other professionals. Nothing here is legal advice.
How to Organize the Review
Start by requesting documents early, since sellers may need time to assemble leases, bills and records. Keep a running list of open questions, and assign each area to the right professional: an attorney for title, leases and compliance, an accountant for the financial records and a qualified inspector for the building. Issues found during diligence may lead to a renegotiated price, seller credits, repairs before closing or a decision not to proceed, depending on the purchase agreement.
Financial Records
- Operating statements for several years and a trailing twelve-month statement
- Bank statements to reconcile reported income with actual deposits
- Utility, tax, insurance and service bills supporting reported expenses
- A current budget and any capital spending records
- A schedule of existing debt, liens and any assessments
Our guide to multifamily operating statements explains how buyers normalize expenses.
Rent Roll and Leases
- A current rent roll showing each unit, resident, lease dates, rent, deposits and balances owed
- Copies of all leases, renewals and addenda
- Records of concessions, free rent and side agreements
- Delinquency and collection reports
- Tenant estoppel certificates, where obtained
- Security deposit accounting and any deposit-holding requirements
See our article on the rent roll audit.
Physical Condition
- A property condition assessment by a qualified professional
- Roof, structure, mechanical, electrical and plumbing review
- Walk-throughs of a sample of units, including vacant units
- Maintenance logs, warranties and open work orders
- Life-safety systems and any code violation notices
Our article on apartment property condition explains how findings may affect the deal.
Title, Survey and Zoning
- Title commitment, easements, encumbrances and recorded restrictions
- Survey showing boundaries, parking and improvements
- Confirmation that the current use and unit count are legally permitted
- Certificates of occupancy and rental registrations where required
Insurance and Environmental
- Current insurance policies and loss history
- Flood zone status and any other hazard exposures
- An environmental site assessment, frequently required by lenders
- Information on asbestos, lead-based paint, mold or radon, where relevant
See our article on apartment building insurance and environmental reports.
Legal and Compliance
- Pending or past litigation, including eviction proceedings and resident disputes
- Rent regulation status and registration records, where applicable
- Fair housing complaints or investigations
- Participation in any rental assistance or affordability programs and their restrictions
Our article on rent regulation and fair housing explains why these matters require counsel.
Operations and Contracts
- Property management agreement and termination terms
- Service contracts for laundry, waste, landscaping, elevators and other vendors
- On-site staff and whether any employees will transfer
- Utility billing arrangements with residents
What Lenders Will Review
Lenders frequently order their own appraisal, property condition report and environmental report, and they review the rent roll, operating statements and title. Coordinating your diligence with the lender’s requirements can help avoid duplicated work and delays.
US Professional Funding helps buyers finance the acquisition of existing, stabilized apartment buildings and can help coordinate financing around a thorough due diligence process. Learn more about our multi-family acquisition financing.
