Before you buy a multifamily property, ask for records that show what it earns and costs to run. Start with the rent roll, signed leases, payments and the past 12 months of operating statements. Then check what needs fixing and how much the loan will cost. Projected rent alone cannot show what cash you will keep after repairs and loan payments.
Updated October 8, 2026.
Use these questions to request records and plan the review with your advisers. Set the scope with your lender and inspector.
Does the rent roll match the signed leases?
A rent roll lists the units and leases in a building. Ask for a dated copy with every unit, including empty apartments and units used by staff. Get the signed leases, renewals, changes and side agreements behind it.
Build a comparison sheet with these fields:
- Unit number, leaseholder and occupancy status.
- Monthly contract rent, separate parking or storage charges, and lease dates.
- Free-rent periods, discounts, credits and other concessions.
- Deposit held, prepaid rent and unpaid balance.
- Utility responsibility and any promised repairs or improvements.
Follow each rent figure back to the lease. Look for missing signatures, old agreements and rent amounts that differ between records. Ask the seller to explain each mismatch in writing. For a small building, you can check every lease. For a larger building, agree on which files to check and widen the review when you find gaps.
Fannie Mae’s lease-audit guidance requires its lenders to reconcile rent rolls with signed leases and validate collections. Its sampling rules are program-specific, but the distinction matters for any buyer: a rent roll describes the income; the supporting records help prove it.
How much rent is collected, and why are units vacant?
Ask for tenant ledgers, a report of unpaid rent by age, and records of rent deposits. Compare charges, credits and cleared payments across the same months. Our guide to what a rent ledger records helps you read that payment history.
Keep current rent apart from payments toward old debts. Look for failed transfers, refunds and write-offs. Ask whether a jump in receipts came from steady payments or a one-time payment of old rent. Fannie Mae’s income guidance calls for checking recent receipts, past vacancy and unpaid rent. A yearly total alone can miss those changes.
Keep physical vacancy and income loss separate. Physical vacancy measures empty units; income loss also reflects free rent, discounts and unpaid rent. Even with a tenant in every unit, the building can collect less than the rent due.
For each empty unit, ask for the move-out date, repair status, asking rent, past showings and any signed future lease. Check move-outs over the full year. A unit that needs plumbing work has different costs from a ready unit that few people want to see.
Compare proposed rents with similar units by size, condition, location and included utilities. Keep future rent increases in a separate forecast. Ask a local attorney to check rent rules and lease limits before you put those increases in your base budget. Study demand for the unit sizes and features you would own.
What does the T12 reveal about operating costs?
T12 means the trailing 12 months of income and expenses. Ask for monthly statements, the general ledger and bills for unusual costs. Get earlier yearly statements when you can. They help you tell a cost that keeps coming back from a single bad month.
Rebuild the cost budget line by line. Include property taxes, insurance, owner-paid utilities, routine repairs, payroll, management, office costs and service contracts. Get an insurance quote for your ownership and ask the local assessor about taxes after the sale. The seller’s bills show past costs, not what you will pay.
Ask which costs the seller paid outside the building’s accounts. Unpaid owner work, shared staff and bills charged to another building can make the costs look low. Include a fair cost for management even if you plan to do the work yourself.
Record each change beside its source and reason. Fannie Mae’s income-analysis guidance calls for records to support changes to each line of the statements. Keep the seller’s past results and your future budget in separate columns. This keeps a saving you hope to make from looking like a proven fact.
What repairs and capital work will you inherit?
Ask for repair logs, open work orders, inspection reports, permits, warranties and bills for claimed upgrades. Have a qualified inspector check those records against the units and shared building systems. A newly finished display unit cannot tell you the state of the roof, drains or other units.
Have the inspection team list urgent safety issues, overdue repairs and future replacements separately. For roofs, plumbing, wiring and heating systems, ask what needs work and when. Get cost estimates and an estimate of how much useful life remains. Ask whether the findings call for a specialist or an environmental review.
Turn that report into a cash plan. Include urgent work, rent lost while units need repairs, and money set aside for later replacements. Fannie Mae’s inspection and reserve guidance links the findings to repair plans and funds for major work. Its rules apply to its loans; your building still needs its own estimates.
Our annual maintenance checklist can help you plan work after you buy. You still need an inspection before you buy and quotes for the work.
Keep tax treatment separate from that cash budget. The IRS’s tangible-property guidance distinguishes deductible repairs from improvements that must be capitalized. The improvement test considers the building structure and individual building systems, including plumbing, electrical and HVAC. Elections and safe harbors have conditions. A seller’s label of “maintenance” does not settle the tax treatment.
Who pays each utility bill?
Ask for a full year of water, sewer, electricity, gas and trash bills. Match each account and meter to the units or shared areas it serves. Compare the lease terms with how the owner bills tenants.
Check whether the owner pays for empty units, shared lights, lawn watering or central hot water. If tenants repay the owner, match their charges and payments to the bills. Show the full utility costs and tenant payments on separate lines. If the books show a net cost, check what it includes so you do not count those payments twice.
Have your local adviser check the billing plan and any changes against the local rules. Do not assume a lease clause permits every utility charge. Have a qualified inspector look into unusual use; a high bill alone does not show the cause.
Can the documented income support your financing?
Ask for a written loan quote with the amount, rate, payments, fees, required reserves, due date and early-payoff terms. Check personal guarantees and other duties you would take on. Ask how payments change after an interest-only period or rate reset. Find out how much you must pay when the loan term ends.
Net operating income (NOI) is the building’s income after running costs, before debt service, depreciation and income tax. Debt service means the required loan payments. A debt service coverage ratio (DSCR) compares the income figure used for the test with those payments.
Ask the lender how it works out both figures. Fannie Mae uses underwritten net cash flow, after reserves, in its DSCR calculation. For that test, it uses payments that include principal, even when the loan starts with interest-only payments. Other programs can use different rules. Your NOI-based ratio may differ from the lender’s test.
Illustrative NOI and DSCR calculation
The following figures are invented solely to show the arithmetic. They are not Utopia operating results, current market rents, a loan quote or a return forecast. Assume eight units have scheduled rent of $2,000 each per month.
| Annual income calculation | Amount |
|---|---|
| Scheduled rent: 8 × $2,000 × 12 | $192,000 |
| Less rent lost to vacancy | −$9,600 |
| Less concessions | −$2,400 |
| Less uncollectible rent | −$3,600 |
| Plus recurring other income | $3,600 |
| Effective gross income | $180,000 |
Assume annual operating costs of $30,000 for taxes, $12,000 for insurance, $18,000 for utilities and $15,000 for routine repairs. Add $12,000 for management and $9,000 for administration and contracts. Total operating expenses equal $96,000.
- NOI = $180,000 − $96,000 = $84,000.
- Assumed principal-and-interest payments = $5,000 × 12 = $60,000 a year.
- NOI-based DSCR = $84,000 ÷ $60,000 = 1.40.
That ratio means NOI is 1.40 times the yearly loan payments in this example. It does not mean a lender would approve the loan.
Allow for replacement reserves
Now assume $8,000 a year in replacement-reserve funding, shown below NOI. Cash flow after reserves is $76,000; divide by $60,000 to get about 1.27. This reserve-adjusted ratio shows the effect of funds set aside for future work. It is not a full Fannie Mae loan review.
Cash remaining after debt service and reserve funding is $84,000 − $60,000 − $8,000 = $16,000. That amount is before additional capital spending, income tax and transaction costs. Do not count principal payments as operating expenses or deduct them twice.
Test a weaker collection year
If annual collections fall by another $12,000 while expenses and debt service stay fixed, NOI becomes $72,000. The NOI-based DSCR falls to 1.20. After the same reserve funding, coverage is approximately 1.07 and remaining cash is $4,000. None of these ratios is a universal lender threshold.
You can compare NOI with price using our cap rate calculator. Use the rental property ROI calculator to explore cash invested and financing, with assumptions that you can support.
What must be documented before closing?
Keep a dated list of open issues, who will resolve them and what proof you need. Review it with your broker, lender, inspector and attorney before each key date in the purchase contract. Ask your broker about past sales of similar buildings and how they check rent records and inspection findings.
- Confirm the recorded property description, title exceptions, access rights and any survey issues with the title team.
- Obtain occupancy and permit records; investigate whether the advertised unit count matches approved use.
- Request records of open violations, disputes, rental registrations and any affordability restrictions for local review.
- Refresh the rent roll and collections; reconcile deposits, prepaid rent, prorations and credits on the closing statement.
- Identify service contracts to transfer or end, unpaid vendor invoices, keys and access credentials for building systems.
Reconcile refundable deposits separately from earned rent. IRS Publication 527, for 2025 returns, says a deposit intended to be returned is not income when received. An amount designated for final rent is advance rent. It also explains why mortgage principal payments are not rental expense deductions. These federal tax distinctions do not establish your state’s deposit-transfer procedure.
Plan the management handoff before the sale. Utopia’s apartment management services cover leasing, rent collection, maintenance coordination and financial reporting. Ask who handles open work orders and how the team checks each tenant’s balance at the start. Our questions to ask a property manager can help you review the plan.
Frequently asked questions
What if the seller provides only a projected operating statement?
Ask for the records behind it: leases, rent receipts, utility bills, tax bills, insurance records and repair bills. Keep the forecast apart from proven results. If records stay missing, list what you cannot check. Test less rent and higher costs before you decide to buy.
Does a fully occupied building have no vacancy risk?
No. Having a tenant in every unit does not prove full rent payments or mean everyone will stay. Check unpaid rent, discounts, lease end dates and past move-outs. Budget for the time and cost of getting units ready and leasing them when tenants leave.
Is replacement-reserve funding included in NOI?
In this example, reserve funding appears below NOI and reduces cash left before debt service. Lenders can use different rules. Ask which income figure your lender uses. Keep funds set aside for future work apart from actual repair costs so you do not count the same cost twice.
Sources
Sources checked 2026-10-08. Fannie Mae guidance describes its multifamily lending program, not requirements for every purchase. IRS Publication 527 is the 2025-return edition; it is not a new 2026 tax publication.
- Fannie Mae: Lease audits, inspections and reserves — signed-lease reconciliation, collections evidence, condition assessment and capital funding. Checked 2026-10-08.
- Fannie Mae: Underwritten net cash flow — historical statements, vacancy, concessions, bad debt, expense adjustments and reserves below NOI. Checked 2026-10-08.
- Fannie Mae: Underwritten DSCR — reserve-adjusted income and amortizing debt service, including interest-only loans. Checked 2026-10-08.
- IRS: Publication 527 (2025), Residential Rental Property — refundable deposits, advance rent and mortgage principal. Checked 2026-10-08.
- IRS: Tangible property final regulations — repair and improvement analysis, building systems and conditional elections. Agency page updated August 4, 2026; checked 2026-10-08.
- Utopia Management: Apartment management — published leasing, collection, maintenance coordination and reporting services. Checked 2026-10-08.
This is general information, not legal, tax or individualized investment advice. Have qualified advisers apply the relevant rules and financing terms to the specific property.
