First-time multifamily buyers read the offering memorandum. Experienced buyers throw it out and start over.
The offering memorandum (OM) for an apartment complex for sale is produced by the seller's broker. Its job is to present the asset favorably. That is not dishonest. It is the function of marketing. Experienced buyers understand this and use the OM as a starting framework for their own independent underwriting, not as the basis for a purchase price.
Step 1: Rebuild the Rent Roll From Scratch
Request current leases for every unit, not a summary rent roll prepared by the broker. Verify unit-by-unit: current rent, lease expiration date, security deposit held, and any side agreements or concessions in effect.
Specifically look for: units being offered at below-market concessions to inflate occupancy before sale, leases expiring within 60 days of close (which can mask upcoming vacancy), and month-to-month tenancies that may leave quickly after a change in ownership.
Step 2: Recast the Operating Expenses
Broker OMs typically present expenses at the low end of what is reasonable. Apply your own expense assumptions based on the specific asset. Key recasting items:
Property management: Always include a market-rate management fee of 8-10% of effective gross income, even if you intend to self-manage initially.
Maintenance and repairs: Use $800-$1,500 per unit annually depending on property age. The OM number is almost always lower.
Insurance: Get actual current quotes for this specific asset in this specific ZIP code. SoCal insurance markets have repriced significantly since 2023. Never use the seller's current premium as your estimate.
Capital reserves: Budget $200-$500 per unit annually and layer in any deferred maintenance identified during your walkthrough.
Step 3: Walk Every Unit
Before you are in contract, walk every unit that is accessible. You are looking for: deferred maintenance the seller has not disclosed, the actual condition of kitchens and bathrooms relative to the rent being charged, evidence of water damage or mold, and the general quality of the tenant base.
A 12-unit building where 4 units have water-damaged ceilings, outdated electrical, and appliances from 2003 is a different investment than what the OM's photos suggest. In-person unit walkthroughs surface information that no document can replace.
Step 4: Understand the Regulatory Environment
For any SoCal apartment complex built before 2005, confirm AB 1482 applicability and any local rent control overlay (Los Angeles, Santa Monica, and several other cities have additional protections beyond state law). Understand the implications for: rent increases, eviction procedures, buyout agreements, and vacancy decontrol rules.
Regulatory exposure is not necessarily a reason to pass. But it must be modeled accurately, not assumed away.
Step 5: Verify the Capital Structure
If the seller carries existing debt, understand the loan terms before you assume or retire them. Prepayment penalties, defeasance requirements, and assumable loan opportunities can all affect your acquisition economics meaningfully.
VisionWise Capital's Role
VisionWise Capital works with both buyers and sellers of apartment complexes throughout Southern California. For buyers, we help evaluate specific assets, identify off-market opportunities, and structure acquisitions that align with long-term capital goals.
Questions Buyers Ask Before Making an Offer
Should I trust the occupancy figure in the offering memorandum?
Verify it against the leases rather than the summary. Occupancy can be lifted before a sale with short-term concessions or month-to-month tenancies that leave once ownership changes. A building reported at 100% occupancy where three leases expire within sixty days is not the same asset as one with staggered, seasoned tenancies.
How much should I adjust the seller’s expense figures?
Rebuild rather than adjust. The lines that matter most are property taxes, which reset to your purchase price under Proposition 13 and bear no relation to a long-held seller’s bill; insurance, which needs a current quote for the specific property; and management, which is often missing entirely when the seller self-manages.
What if I cannot access every unit before going into contract?
It is common on occupied buildings, since tenants must be given proper notice. Negotiate access to a meaningful sample before contract and full access during the contingency period, and treat the units you have not seen as an unpriced risk rather than assuming they match the ones you have.
Does rent control make a property not worth buying?
Not usually — it changes the business plan rather than disqualifying the asset. What matters is modelling it accurately: confirm whether AB 1482 applies, check for a local ordinance that goes further, and build turnover and rent-increase assumptions from the actual rules rather than from a general expectation of reaching market rents.
Is assuming the seller’s existing loan usually an advantage?
Sometimes, particularly where the existing rate is below current market. Confirm the loan is actually assumable, what the lender will require of you, and what fees apply. Where a loan is being retired instead, prepayment penalties or defeasance costs can be substantial and belong in the acquisition budget rather than surfacing at closing.
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This content is for informational purposes only and does not constitute investment, legal, or tax advice. Real estate transactions and private placements involve significant risk, including potential loss of principal. Always consult qualified legal, financial, and tax professionals before making investment decisions.
Related Reading
- Multifamily Capital-Expenditure Due Diligence
- When to Sell Your Apartment Building: Signs SoCal Owners Should Not Ignore
- General Solicitation vs. Investment Eligibility
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