Say you're about to put an offer on a 24-unit building. The listing package looks great: full occupancy on the rent roll, tidy operating statement, a note that "all units are in good condition." Everyone you talk to is friendly. The deal feels right.
That feeling is exactly why you need a checklist. Due diligence is the period when you stop listening to the story and start checking it. A good multifamily due diligence checklist won't make a bad deal good, but it will keep you from buying a bad one by accident, and it will give you the facts you need to renegotiate a fair one.
This guide is written for first-time buyers of five-plus-unit properties and for syndicators who want a repeatable process. It is not legal or financial advice, so use it alongside your attorney, lender, CPA and inspector.
Build your multifamily due diligence checklist before you open a file
Good diligence starts with organization. Before the seller sends anything, decide who is on your team, what you will ask for, and how you will track it.
A typical team includes your property manager, an inspector or two, an attorney, a title company, your lender, and an accountant. We'd put the manager near the top of that list, since they're the person who will operate the building after you close. They can look at a rent roll and tell you which numbers feel off, walk the property and spot what an inspection report misses, and tell you what it will take to run the place.
Keep one master list of every request, who owns it, when you asked for it and when it arrived. Track it in a shared sheet. Your contract sets the diligence window, so build your schedule backward from the deadline, and ask for an extension in writing if documents are late. Don't just wait and hope.
A simple order of operations helps:
- Request every document up front in one organized list.
- Review the financials and rent roll first, because they decide whether the deal is worth the cost of the rest.
- Order the third-party reports (inspection, environmental, survey, appraisal) once the numbers hold up.
- Walk the property with your manager, ideally more than once and at different times of day.
- Go back to the seller with a clear list of findings and what you want done about them.
The rent roll audit
The rent roll lists every unit, the resident, the monthly rent, the lease dates, the deposit and the balance owed. It is the first document to check, because every income number in the deal depends on it.
Start with the basics. Does the unit count match the property records and the marketing? Does the unit mix match the floor plans? Are there units listed as occupied that are actually down, being used by staff, or offline for repairs?
Then test for the common distortions:
| What to check | What can go wrong |
|---|---|
| Vacant and "down" units | Listed as occupied or left out of the vacancy count |
| Rents vs. leases | Rent roll shows more than the signed lease |
| Concessions | Free rent hidden from the rent roll |
| Lease dates | Many leases expiring in the same month |
| Delinquency | Balances owed that never get collected |
| Month-to-month residents | Large share of units with no lease commitment |
| Employee and "friends" units | Discounted or free units that won't continue |
| Deposits | Deposit ledger doesn't match the amounts held |
Compare rents unit by unit with the lease files. Sample at least a meaningful share of the leases, and more if anything looks off. Look at how recently the leases were signed and whether current rents match what new residents are being offered. If the building shows rents far above what the market is bearing, ask why.
Here is a quick way to see why this matters. Say the rent roll shows 24 units at an average of $1,350, or $388,800 a year if every unit paid every month. The T12 shows $351,000 collected. That $37,800 gap could be vacancy, concessions, bad debt or units that were never really rented. Maybe all of it is explainable. But until you can account for every dollar of the gap, you don't know what the building earns. (Example numbers only.)
If the rent roll and the bank deposits don't tell the same story, believe the bank deposits.
Which brings us to the next step.
The T12 and the financials
The trailing twelve months of income and expenses, called the T12, tells you what the building actually earned. Ask for monthly detail, not just a yearly total, because a total can hide a bad quarter or a big one-time item.
Start by tying the income side to reality. Add up the rents on the rent roll for the year and compare to what the T12 reports. Then compare the T12 to the bank statements and the deposit records. These should reconcile closely, and if they don't, you want to know exactly why.
On the expense side, look for what is missing or low:
- Management fee and payroll. Many owner-managed buildings show no management fee or understate payroll. You'll pay both, so underwrite them at market levels, not the seller's.
- Repairs and maintenance. A very low number often means deferred work, not efficiency.
- Property taxes. Taxes can reset after a sale, so check how the assessor treats the new price rather than carrying over the seller's bill.
- Insurance. Get a real quote for your coverage. The seller's premium may reflect an old policy.
- Utilities. Compare to the utility bills, and check for recent increases.
- Reserves and capital items. Replacement reserves are rarely in a seller's operating statement, but you will need them.
- One-time items. A single big repair or legal bill can distort the year. Make sure you're comparing normal operations.
If you want to understand how each of these lines turns into value, our piece on how to increase NOI shows how income and expense changes move a building's worth. For underwriting an acquisition, a clean model matters just as much, and our financial modeling work is built around testing exactly these assumptions.
Rebuild the seller's pro forma using your own assumptions: your own vacancy, your own expenses, your own management fee. If the deal only works with the seller's numbers, it doesn't work.
Leases and resident files
The leases are contracts that will bind you after closing, so read them.
Check that leases are signed, complete and consistent. Look at the terms, renewal clauses, pet and fee provisions, utility billing language, and any side agreements or promises that aren't in writing. Ask whether any residents hold options, rights of first refusal, free rent or unusual terms. Ask for an estoppel certificate from residents where your attorney recommends it, which confirms the terms, rent and deposit each resident believes they have.
Look at the files for patterns too. How many residents are behind? How many received late notices or legal notices in the last year? How many have disputes, complaints or accommodation requests open? That tells you not only about the cash flow but about how the building has been run.
Security deposits deserve their own line on your checklist. In Nevada, the rules on deposits and on what happens when a property is sold sit in the residential landlord chapter, NRS 118A. NRS 118A.242 addresses the amount and handling of deposits, and the chapter describes what happens to deposits at transfer, including that the new owner takes on obligations for deposits owed at the time of sale. Confirm the ledger matches what the seller actually holds, and have your attorney tell you how to handle the transfer at closing.
The physical inspection
The physical review is where a manager and an inspector earn their fees. A general property inspection is the start, not the end.
Walk the property early, then walk it again during diligence. Look at the building the way a resident would, then look at it the way an owner who has to pay for it would.
| Area | What to look for |
|---|---|
| Roofs | Age, patches, ponding, flashing, remaining life |
| Plumbing | Pipe material, leaks, water pressure, water heaters |
| Electrical | Panel brand and age, aluminum wiring, overloaded circuits |
| HVAC | Age, type, condition, who services it |
| Structure | Foundation cracks, settling, decking, balconies, stairs |
| Exterior | Siding, paint, windows, drainage, parking and paving |
| Common areas | Laundry, lighting, fire and life-safety equipment |
| Units | A real sample, including the worst ones, not only the models |
| Environmental | Anything flagged in a Phase I report |
Ask the seller for a list of every capital project done in the last five years, with dates, invoices and warranties. Roofs, water heaters, boilers and paving all come with histories, and you want to know which are original and which have been replaced. A recent replacement is worth real money. A "recent repair" that turns out to be a patch is worth very little.
Insist on seeing a representative sample of units, including occupied ones and vacant ones the seller would rather not show. Ask the inspector to open panels, look in crawl spaces and attics, and scope the main sewer line. Ask the maintenance team what keeps breaking. Residents often say more in two minutes than a report does in twenty pages.
Turn what you find into a capital plan. List each item, what it will cost, and when you will likely need it. This list feeds your reserves and, if the price needs to change, your renegotiation.
If the building was built before 1978, ask for any lead-based paint records. Federal rules require sellers to disclose known lead-based paint information and give buyers an opportunity to review it, and the EPA explains how the rule works for real estate disclosures about potential lead hazards. Ask your attorney how it applies to your purchase.
The market and the competition
Even a perfect building loses value if the neighborhood is moving the wrong way. Check the market with the same skepticism you gave the financials.
Look at supply: what is under construction or planned nearby, and when does it open? Look at demand: employers, population and job trends in the Truckee Meadows or wherever you're buying. Then look at comparable rents in a clean way. Call the buildings. Check their websites. Note advertised rent, concessions, fees and what is included.
The key question is whether the building's rents are consistent with its competition. If the seller's rents are already at the top of the market, there is less upside than the pitch suggests. If they're well below, ask whether that's an opportunity or a clue to a problem you haven't found yet. Our guide to value add multifamily goes through how to test a premium before you pay for it.
Legal, title and compliance
Your attorney leads this part, but you should know what to ask for.
- Title and survey. A clean title commitment, a survey that matches the legal description, and no surprise easements, liens or encroachments.
- Zoning and permits. Confirm the use is legal and conforming, and check for open permits or unpermitted additions.
- Violations and inspections. Open code violations, fire marshal notices, and any health or safety orders.
- Litigation. Pending or recent lawsuits, evictions in progress, claims and demand letters.
- Contracts. Service contracts, management agreements, leases for laundry or antenna equipment, and which ones survive the sale.
- Fair housing and accommodations. Any complaints, requests or open matters involving residents' rights.
- Special assessments and subsidies. Any rent restrictions, affordability agreements or tax abatements attached to the property.
Lender, appraisal and insurance requirements
Your lender will have its own list, and it often overlaps with yours. Expect requests for an appraisal, an environmental report, property condition assessment, insurance certificates and sometimes a reserve account for repairs found in the inspection. Ask your lender early what they require and when, so you don't discover a third-party report that takes six weeks after your window has closed.
Insurance is worth its own conversation. Ask your broker for a quote on the actual building, with the loss history, the roof age and the wiring in front of them. The premium can swing a deal's numbers more than people expect, and a building that is hard to insure is a building that will be harder to finance and sell.
Don't forget insurance claims. Ask for the loss history, and check that the building can be insured at a cost that fits your model.
Staffing, vendors, utilities and operations
Buyers tend to treat operations as something to figure out after closing. It's cheaper to look now.
Find out who works at the property today, what they do, what they're paid and whether they plan to stay. Ask which vendors the building relies on and whether those relationships transfer. Ask how maintenance requests are handled and how long they take. Ask how leads are answered and how leasing works day to day.
You're also looking for dependence on a single person. If one maintenance tech holds every key and every secret, that is a risk. If the seller's family handles collections informally, that is a different one. Plan for how you'll replace those functions on day one.
This is also the right time to talk to the company that will manage the building. They can tell you what a realistic staffing model looks like and what the transition will involve.
Utilities, billing and the small print
Utilities are one of the places we most often find surprises. Check which utilities are master-metered and which are separately metered, and whether the building bills residents back. Look at how bills are calculated, whether the billing is documented in the leases, and how much of the cost is actually being recovered. Compare the recovered amount to the total bills.
Check for leaks and unusual usage by reviewing a year or two of water bills. A building that uses far more water than its unit count would suggest may have a problem hiding underground. Also check the contracts for trash, landscaping, pest control and laundry, including renewal dates, termination fees and whether any are tied to the current owner.
Close the loop before you close
When the reviews are done, put your findings in one place: what was verified, what didn't match, and what each item is worth in dollars. Sort them into three buckets.
First, the issues that change the price, like deferred maintenance or rents that don't hold up. Second, the issues you'll accept and plan for, like a roof with five years left. Third, the issues that make you walk away, like a title defect or a rent roll that doesn't reconcile.
Plan your first 90 days while you still have time
Diligence is also your chance to design day one. Decide before closing who will manage the building, how residents will hear about the change, where rent will be paid, which vendors keep working, and what the first month's priorities are. Line up the bank accounts, insurance and utility transfers. Prepare a short, friendly letter for residents that tells them what stays the same.
The buyers who handle this well are usually the ones who talked to an operator early. If you'd like a second opinion on a deal or on your own checklist, our multifamily consulting team does this kind of review regularly, and we are glad to look at the numbers with you before you commit.
A short list of red flags
None of these kill a deal by themselves. A pattern of them should make you slow down.
- Numbers that change between versions of the same document
- A seller who is slow, vague or defensive about records
- Rents that look high for the finish level, with no recent leases to back them up
- Deferred maintenance that has been painted over rather than fixed
- A bank statement that doesn't match the deposits on the T12
- A big share of residents who are month-to-month or behind on rent
- Utility bills that don't track unit count or season
Then go back to the seller with a clear, calm request, backed by documents. Most sellers respond better to evidence than to opinion. And if the answers aren't good, remember that walking away from a deal in diligence is the system working, not failing. The purchase you don't make is often the best one you looked at.
