Multifamily due diligence is the process of verifying a property's financial, physical, and legal condition before closing an acquisition. A typical DD period is 30-60 days and includes reviewing rent rolls, T12 financials, lease files, property inspections, title reports, and environmental assessments. Thorough due diligence protects against overpaying and hidden liabilities.
Due diligence is your last line of defense before wiring millions of dollars. It's the period between signing a purchase agreement and closing where you verify that everything the seller told you is actually true.
Here's the reality: due diligence is a race against the clock. You have 30-60 days to review 50+ documents, inspect every unit, reconcile financials, and make a go/no-go decision. Every day you spend copying data from PDFs is a day you're not analyzing it.
This guide gives you the complete playbook: what documents to request, when to request them, how to verify accuracy, and what red flags should make you walk away.
The Due Diligence Timeline
A well-structured DD process follows three phases. Time-sensitive items come first; verification and negotiation come last.
- Submit document request list to seller/broker
- Order third-party reports (Phase I ESA, PCA, appraisal)
- Schedule property inspection and unit walks
- Begin title and survey review
- Set up DD tracking spreadsheet
- Complete property walkthrough and unit inspections
- Analyze rent roll vs. T12 vs. bank deposits
- Review all lease files and abstracts
- Evaluate service contracts and vendor agreements
- Assess capital needs and deferred maintenance
- Verify utility expenses and sub-metering
- Receive and review third-party reports
- Finalize capital expenditure budget
- Reconcile all discrepancies with seller
- Renegotiate price based on findings (if needed)
- Make go/no-go decision before contingency deadline
- Prepare closing documents and wire instructions
Complete Document Request Checklist
Send this list to the seller on Day 1. The faster you get documents, the more time you have to analyze them.
Financial Documents
Operational Documents
Legal Documents
Physical & Environmental
Financial Due Diligence
Financial DD verifies that the income and expenses represented by the seller are accurate. This is where most deals either get confirmed or fall apart.
Rent Roll Analysis
The rent roll is the foundation of income verification. For a complete guide, see our What is a Rent Roll guide. Key verification steps:
- Compare scheduled rent to lease agreements for each unit
- Verify occupancy status matches physical inspection
- Calculate MTM concentration (target: under 20%)
- Review lease expiration schedule for concentration risk
- Check for above-market rents that may reset at renewal
T12 Verification
The trailing 12-month P&L shows actual historical performance. Verify by:
- Cross-check total rental income against bank deposits
- Compare expense line items to actual invoices
- Look for one-time expenses that inflated or deflated NOI
- Verify management fees match contract terms
- Check for capital items incorrectly expensed as repairs
Bank Statement Reconciliation
Bank statements are the ultimate source of truth. They show what actually hit the account.
Rent Roll (scheduled) ≈ T12 (collected) ≈ Bank Deposits (actual)
// Acceptable variance: <5%
// Investigate anything >5%
Physical Due Diligence
Physical DD identifies capital needs and deferred maintenance. Hidden physical issues can turn a profitable deal into a money pit.
Property Condition Assessment (PCA)
A third-party PCA evaluates all major building systems and projects capital needs over 10-12 years. Systems evaluated include:
- Roofing - age, condition, remaining useful life
- HVAC - system age, efficiency, replacement timeline
- Plumbing - pipe material, water heaters, known issues
- Electrical - panel capacity, wiring condition, code compliance
- Building envelope - siding, windows, foundation
- Site improvements - parking, landscaping, fencing
Unit Inspections
Critical rule: Inspect EVERY unit, not just a sample. Sellers will show you the best units. The worst units are where problems hide.
- Document condition with photos and videos
- Check appliances, flooring, fixtures, HVAC
- Look for water damage, mold, pest evidence
- Note deferred maintenance items
- Estimate turn cost for each unit type
Legal Due Diligence
Legal DD protects against title issues, lease problems, and regulatory compliance failures.
Title and Survey Review
- Verify clean chain of title with no competing claims
- Review all easements and encumbrances
- Confirm survey matches legal description
- Check for boundary disputes or encroachments
- Review any HOA or deed restrictions
Lease Audit
- Review every lease for non-standard terms
- Verify rent amounts match rent roll
- Check for rent concessions or free rent periods
- Identify any lease guarantees or special provisions
- Confirm security deposit amounts match register
Stop spending DD days on data entry
Due diligence involves reviewing 50+ documents under tight deadlines. Primer extracts rent rolls, T12s, lease terms, and expense data from any format — so you can focus on analysis, not data entry.
Book a demoReconciliation Matrix
Documents should cross-check each other. When they don't match, investigate.
| Compare | Against | What Should Match |
|---|---|---|
| Rent Roll | Lease Agreements | Rent amounts, lease dates, tenant names |
| Rent Roll | T12 Income | Total scheduled rent x 12 ≈ annual rental income |
| T12 Income | Bank Deposits | Collected rent should match deposit totals |
| T12 Expenses | Invoices/Contracts | Line items should match actual bills |
| Security Deposits | Lease Agreements | Deposit amounts per lease vs. register total |
| Unit Count | Physical Inspection | Rent roll units = actual units on property |
Red Flags to Watch For
These patterns should trigger deeper investigation or deal renegotiation:
Rent Roll Doesn't Match Bank Deposits
If scheduled rent is $100K/month but only $85K deposits, $15K is disappearing somewhere. Could be vacancy, bad debt, concessions, or fraud.
Vacancy Above 10% Without Explanation
Stabilized properties should run 93-97% occupied. Higher vacancy signals market issues, property problems, or management failures.
Declining NOI Trend
If NOI has dropped 3+ months in a row, understand why. Rising expenses? Falling rents? Increased vacancy? The trend may continue post-acquisition.
Artificially Low Expenses
If expenses are 25% below market norms, the seller is likely deferring maintenance. You'll pay for it after closing.
High MTM Concentration (>20%)
Month-to-month tenants can leave with 30 days notice. High MTM means high turnover risk and potential income volatility.
Missing or Incomplete Documentation
If the seller can't produce basic documents, it signals operational problems. Well-run properties have complete records.
Recent Mass Lease-Up with Heavy Concessions
If 80% of tenants moved in the last 6 months with 2 months free rent, the property was likely distressed. Will these tenants renew at full price?