What should I actually check before buying an apartment building in LA?
LA multifamily due diligence checks three files: income (estoppel certificates and actual bank deposits against the rent roll), the building itself (seismic retrofit status, permit history versus what is physically built, sewer and roof condition, the city's 9A report), and the regulatory record (RSO registration, REAP and SCEP history, and any open orders). One modern addition now kills more escrows than any of them. Get a bindable insurance quote in week one, not week three. Every number in the offering memo is a claim until a document proves it.
Answered by Shaya Lowenstein, a Los Angeles multifamily broker at Lyon Stahl Investment Real Estate, CA DRE 01942326, with 15 years in apartment buildings and land across Los Angeles County. His closed sales are published with addresses and recording dates, so anything claimed here can be checked against the county record.
Income: trust nothing, verify everything.
The rent roll is the seller's assertion; your job is to triangulate it. Estoppel certificates, signed tenant statements of rent, deposit, and lease terms, are the primary check, and any daylight between an estoppel and the rent roll is a repricing conversation. Ask for two to three months of actual bank statements showing rent deposits, because collections that trail the rent roll reveal non-paying tenants the OM forgot to mention. Match the security-deposit ledger to units, since missing deposits flag side deals. Confirm any Section 8 tenancies with the actual HAP contracts, since the subsidy portion is both the most reliable income in the building and paperwork the seller must produce. And be suspicious of leases signed in the ninety days before listing at conspicuously strong rents, sometimes real, sometimes staged.
Building and city records.
Pull the LADBS permit history and walk the building against it. The "12-unit" building with eleven permitted units is an LA classic, and an unpermitted unit is a liability wearing an income costume. Order the city's Form 9A residential property report, which surfaces certificate-of-occupancy details and outstanding orders. Verify soft-story retrofit compliance directly with LADBS records rather than the listing copy. Scope the sewer lateral, which on pre-war buildings is the single most common five-figure surprise, and get eyes on the roof, the panel, and the water heaters. Then check the regulatory file with LAHD: RSO registration current, SCEP inspection history, and above all any REAP history, because a building that has been in the rent-escrow program tells you how the city sees this property.
The new deal-killers: insurance and your own tax bill.
Two numbers routinely torpedo escrows late, and both are avoidable. First, insurance. Quotes on older LA habitational product have doubled and worse, and lenders require coverage that satisfies their terms, so engage a broker who writes LA multifamily the day escrow opens, request the seller's loss runs, and have a bindable quote before your contingency deadline. Second, property tax. Under Prop 13 your assessment resets to your purchase price, so underwrite roughly 1.1-1.3% of the price (verify the exact rate area), not the seller's decades-old bill. A buyer who models the seller's insurance and the seller's taxes is underwriting a building that ceases to exist the day they close on it.
EDUCATIONAL ONLY, NOT LEGAL OR TAX ADVICE. RATES, THRESHOLDS AND ORDINANCES CHANGE, AND SEVERAL OF THE FIGURES HERE DEPEND ON FACTS SPECIFIC TO YOU. CONFIRM ANYTHING YOU PLAN TO ACT ON WITH YOUR OWN ATTORNEY OR CPA, OR WITH THE AGENCY THAT SETS IT.
What is a 9A report?
A City of Los Angeles residential property report, required on sale, that discloses records like certificate of occupancy and certain outstanding orders. It is where unpermitted construction and open violations tend to surface. Read it early, not at signing.
What if a tenant refuses to sign an estoppel?
It happens, especially in long-held buildings. The contract typically allows the seller to certify the information instead, but a pattern of missing estoppels on the units with the most surprising rents is its own finding. Price accordingly.
How long should my due diligence period be?
Commonly 10-21 days for books, records, and physical inspection on small LA buildings, with financing contingencies running longer. Complex buildings, those with a Section 8 mix, REAP history, or unpermitted space, justify negotiating for more time up front.
SHAYA LOWENSTEIN · LYON STAHL INVESTMENT REAL ESTATE · DRE #01942326 · (323) 944-2221