Most small multifamily buyers under-do due diligence. Not because they don't know better, but because the deal pace forces shortcuts. A 16-unit building in Tampa with $1.2M in financing doesn't get the same diligence team as a 200-unit institutional deal. But the same things can break it.
This is the checklist. Twelve items, organized by what they tell you and what they cost you to skip. Some you can knock out in 10 minutes. Others take an hour. Together they take roughly 3 hours per address if you're efficient. They're the difference between buying the building you think you're buying and finding out in due diligence when you're spending money that you're buying somebody else's problem.
Why under-diligence happens at this size
Three structural reasons.
Lender depth differs. A Fannie / Freddie small-balance loan or a community-bank loan looks at cash flow and orders an appraisal. They typically don't read the permit history, don't pull code violation records, and don't model adjacent-property sales trends. The institutional world has consultants or fleets of analysts for each. The small-balance world doesn't, so the diligence falls on you.
Closing windows are tight. A 25-day hard-money-to-permanent refinance cycle doesn't leave time for an expansive diligence list. So buyers cut. And what gets cut first is the public-records work, because it's the part the buyer is doing alone without anyone else nagging them to finish it.
OMs are designed to advance the deal. Offering memos disclose what they need to and not much more. Anything not directly contradicted by recorded public data is fair game. Recorded public data is what you check.
The twelve items
Property condition
1. Permit history. What's been pulled, what's been finaled, what's expired or withdrawn. Compare against the broker's renovation claims. Roughly one in three "fully renovated" listings has at least one major capex item with no permit on file. Full guide to pulling permits and reading the file status.
2. Code violation history. Open violations transfer to you on closing in most states. The portal is usually the same as or adjacent to the permit portal. An open violation can mean tens of thousands of dollars of mandatory work or a stop order on the leasing operation. Closed-and-fixed violations are informational; open ones are a price negotiation.
3. Year built and major-system ages. The OM usually states year built. What it usually doesn't state: when the roof was last replaced, when the HVAC was installed, when the electrical panel was upgraded, when the water heater was swapped. These have 15-30 year replacement cycles and a $10K-100K+ per-incident cost. One major system at end-of-life is material to your underwriting. Pull dates from permit history when possible; for the rest, ask the seller for receipts and read condenser nameplates during the walkthrough.
4. Sale history. When did the seller buy it, at what price, at what cap rate? Is the current asking 30% above what they paid two years ago without justification? Either there's been improvement work (which you'd see in permits) or someone has been aggressive on price. Sale history also tells you flip patterns: a property that's traded three times in five years usually has a problem the prior owners discovered.
Money
5. Tax assessment vs purchase price. The current tax bill is for the current owner, not for you. Depending on the state, the assessment will catch up to your purchase price within 1-2 years (TX, FL non-homestead, AZ), reset immediately (CA), or stay locked at the base year until the next cycle (PA, most of NC). The impact to NOI from tax reassessments can be very material and result in significantly lower returns than initial underwriting expected. Full guide to modeling post-sale tax.
6. Rent roll vs market median. Does the in-place rent match local market rent? Use census ACS median rent at the ZIP level as a sanity check. If the OM claims $1,400/unit and the area median is $900, either the property is actually much better than average, or units are genuinely above-market (will trend down with turnover) or the rent roll is overstated. If the reason is one of the latter two, that calls for a discount to your underwriting.
7. Operating expense reasonableness. Most small-multifamily T-12s understate OpEx. The classic missing categories: management fee when self-managed by the seller, reserves at any level, real-world insurance (post-2022 carriers have hardened, especially in FL and TX), and the cost of actual turns. A $4,500/door OpEx for a class C 8-unit is usually closer to $5,500-$6,000 once you add the missing pieces. Set your underwriting floor accordingly.
8. Debt service stress test. Run the deal at three rate scenarios (your quoted rate, +100 bps, +200 bps) across the LTVs your lender will actually offer. DSCR below 1.20 at the +200 bps stress means you're betting on rates declining or rent growth that may not arrive. Both can happen, but a deal that only pencils on optimistic assumptions isn't a deal, it's a hope. Full guide to DSCR analysis.
Location and regulatory
9. FEMA flood zone. Zone X is fine. Anything starting with A or V is regulated floodplain with insurance requirements that can run significantly higher per year and reduce your buyer pool at exit. Don't trust seller-provided "we've never had an issue" claims; pull the actual FEMA Map Service Center data. Full guide to FEMA flood zone checks.
10. Crime grade. ZIP-level crime against national percentile. Doesn't tell you everything (intra-ZIP variance is real, especially in larger ZIPs), but a property in the bottom 10% nationally is going to have higher turnover, more vacancy, and tougher financing. Crime trends matter more than crime levels: a ZIP where crime has dropped 30% over five years is a different proposition than one where it's flat.
11. Demographics trajectory. Three numbers that matter for multifamily: median household income (level plus 5-year direction), renter household share (high share = stable rental demand), and percentage with bachelor's degree (gentrification signal). Don't anchor on the snapshot; ACS 5-year data is averaged across 5 years. Look at how the ZIP was 10 years ago vs. now and where the trend is pointing.
12. Subsidized housing concentration. Section 8 Voucher density, LIHTC properties within a half-mile, public housing within a mile. Affects both your tenant base and your exit cap rate. Not bad on its own, just informational and almost always missing from the OM. HUD's eGIS portal has the data.
What it actually looks like timewise
| Item | Time |
|---|---|
| Permit history | 20-30 min |
| Code violations | 15 min |
| Year built + system ages | 10 min |
| Sale history | 5 min |
| Tax modeling | 30 min |
| Rent roll review | 30 min |
| OpEx review | 20 min |
| Debt service scenarios | 20 min |
| FEMA flood zone | 5 min |
| Crime grade | 10 min |
| Demographics | 10 min |
| HUD concentration | 15 min |
That's about 3 hours per address if you know your way around the various portals. If you're underwriting 5 deals to find 1, you're looking at 15 hours of diligence per deal you actually chase, all of it before you've submitted an offer.
The buyers who actually do this win deals at better prices, because they walk away from the bad ones and bid confidently on the good ones. The buyers who don't tend to overpay, then spend the next 24 months explaining to investors why the property doesn't pencil the way the OM said it would.
Or get all of it in one report
DealBrief pulls every item on this checklist for any multifamily address in our covered markets, in about 60 seconds. Tax modeling, permit history, FEMA zone, crime grade, demographics, HUD subsidized properties nearby, walk score, debt service scenarios across multiple rates and LTVs. Your first report is free.