multifamily due diligence checklist

This is the list we would hand an accredited investor who asked what to check before committing capital to a small Southern California apartment building, whether directly or through a private placement. It is arranged in the order the work actually happens, and every line carries the reason it is there, because a checklist without the “why” gets skipped the moment time is short.

The list assumes a building of 5 to 50 units and a 30-day contingency. Where an item is covered in depth elsewhere on this site, the link is in the line.

Phase 1: Before the Offer

Read the sponsor’s prior deals, not their pitch. Who ran the last three buildings, what was projected, and what the investors actually received tells you more than any biography.
Confirm the sponsor has capital of their own in the deal. Skin in the game on every project is the only alignment that survives a bad year.
Pull the parcel record from the county. Year built, permitted unit count, and lot zoning take ten minutes online and catch the converted garage before the tour does.
Identify the rent-control regime. Statewide AB 1482 applies to most buildings over 15 years old, and cities such as Los Angeles, Santa Monica, and Santa Ana layer their own ordinances on top, which sets the ceiling on every rent assumption you will make.
Drive the block at 9 p.m. as well as 11 a.m. Daytime tours show the building; evening drives show the tenants you will be renting to and the neighbors they live beside.
Decide your walk-away price before you make an offer. Diligence findings are much easier to act on when the number that ends the conversation was written down in advance.

Phase 2: The Income

Everything in this phase should be requested in a single document list on the first day of the contingency.

Walk the rent roll column by column. Unit count, tenure, contract rent, deposits, and related-party units each carry a signal on their own; our guide to reviewing a multifamily rent roll covers the page itself.
Reconcile the roll against bank deposits, leases, and estoppels. Paper rent and collected rent are different numbers, and the difference is the seller’s to explain.
Identify every unit that does not pay full rent. Manager, relative, handyman, and Section 8 units each change either the income or the rules, and the roll rarely flags them.
Check who pays which utilities. An owner-paid master water meter on a 20-unit building is a five-figure annual cost that a separately metered comparable does not carry.
Ask for the last two years of turnover, not the last twelve months. One quiet year can be luck or preparation for sale; two years is the building’s actual behavior.
Read the delinquency ledger. A tenant three months behind is a vacancy that has not happened yet, plus the legal cost of making it happen.

Phase 3: The Building

Get inside every unit, in two rounds if needed. Sellers show the renovated ones first; the unrenovated ones are where your capital budget lives.
Open the water-heater closets and the electrical panels yourself. Galvanized supply lines and Zinsco or Federal Pacific panels are the two findings most likely to change both the budget and the insurance quote; our capital-expenditure field notes walk through both.
Put a camera down the sewer line. A cast-iron main under a 1960s slab is invisible from above and expensive from below.
Have a roofer, not just an inspector, look at the roof. Inspectors report condition; roofers give you a number, and a number is what the budget needs.
Check the soft-story retrofit list. Several Southern California cities require seismic retrofit of tuck-under parking, and an unfinished retrofit is a six-figure obligation that transfers with the deed.
Order the Phase I environmental report if anything nearby was ever a dry cleaner, auto shop, or gas station. Contamination liability attaches to the owner, and the report is cheap next to the alternative.
Price every material finding with a written bid. “Needs work” is not a line item; $84,000 from a licensed contractor is.

Phase 4: The Money

Re-run property taxes at your purchase price. Proposition 13 resets the assessment on sale, and a seller who bought in 1998 has a tax bill that bears no relation to yours.
Get a bound insurance quote for this address, with the panel type disclosed. Older wood-frame buildings in California are being repriced by carriers, and the quote you assumed is not the quote you will get.
Rebuild the expense line per unit rather than as a ratio. A percentage of income hides missing lines, and the missing line is usually management or reserves; see how to review multifamily operating expenses.
Test the loan at a higher rate and a lower rent. Debt-service coverage that only works at the quoted rate and the broker’s rent is coverage you do not have.
Know the loan-to-value and why. The same building at 70% LTV and at sub-50% LTV is two different investments in a downturn, and the difference is how much of your principal is standing between the lender and a loss.
Confirm the reserve is a scheduled number, not a placeholder. A reserve set from the remaining life of the systems you inspected will pay for a roof; $250 a unit because the spreadsheet said so may not.
Stress the exit. Add 50 to 75 basis points to the exit cap rate and confirm the plan still returns your capital, or you are underwriting the market rather than the building.

Phase 5: The Paperwork

Read the private placement memorandum (PPM) for the waterfall, fees, and what happens if the sponsor is replaced. The marketing deck describes the good case; the PPM describes every other case, and you are agreeing to all of them.
Find the preferred return, the hurdle, and who is paid first from a sale. Your position in the waterfall matters more than the projected return when the projection is missed.
Confirm how and when you will be reported to. A written update every quarter and a Schedule K-1 (the partnership tax form) each year is a reasonable expectation; anything vaguer is a question.
Review the title report for easements, encroachments, and recorded agreements. A shared driveway or a recorded affordability covenant changes what the building can become.
Verify the seller’s disclosures against what you found. A gap between the disclosure and the inspection is either a negotiation or a reason to leave, and it should be raised in writing while the contingency is still open.
Have your own counsel and CPA read the documents before you sign. The sponsor’s lawyer drafted them for the sponsor.

How to Use the List

Print it, date it, and write the answer beside every line with the name of the document or person it came from. An item with no answer at the end of the contingency is not a minor gap; it is an assumption you are choosing to buy.

Most of the items above are what a competent sponsor does on your behalf, and when you invest through a private real estate offering for verified accredited investors, the checklist becomes a set of questions for the sponsor rather than tasks for you. The value of having it is knowing which answers a good sponsor should already have, and noticing when one is missing.

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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.

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For independent investor education, see the SEC's investor.gov introduction to investing.

Multifamily Due-Diligence Checklist for Accredited Investors