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How to Buy an Apartment Building (5+ Units) in California

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

To buy an apartment building in California, you price it on its income, make an offer with time to verify that income, then audit every lease, unit and building system before you remove contingencies. At five or more units the deal is underwritten like commercial property, and the tenants, their deposits and their legal protections all come with the building. The steps below follow the order most purchases actually run in.

This guide is for buyers stepping up from a duplex, triplex or fourplex. It focuses on what is different at five units and up, and on the California statutes that decide what a buyer inherits. Local rent and eviction rules vary by city, so we link to our city guides where they apply.

What changes when you move past four units

The biggest change is how the property is valued and financed. A lender sizes a loan on a five-plus-unit building mainly from its net operating income, not from comparable house sales, so the rent roll and expense history become the core of the deal. Our guide to loans for apartment buildings of five or more units covers debt coverage, recourse and prepayment terms.

The second change is the rulebook. State law adds obligations that don’t apply to a single home, and some start at three units:

Balcony and deck inspections: Health and Safety Code §17973 covers buildings with three or more multifamily units and requires the owner to deliver the inspection reports to a buyer at sale.
Rent caps and just cause: Civil Code §1947.12 and §1946.2 (the Tenant Protection Act, often called AB 1482) apply unit by unit, and both run until January 1, 2030 unless extended.
Lead-based paint: For most housing built before 1978, federal rules require the seller to give the EPA pamphlet, disclose known lead hazards and hand over available reports, including building-wide evaluations (EPA).
Local ordinances: Cities such as San Francisco, Oakland, Berkeley and San Jose layer their own rent and eviction rules on top of state law.

The purchase, step by step

Set your criteria and talk to a lender first. Decide on location, unit count, building age and how much deferred work you can take on, then get a lender’s read on loan size and debt-coverage requirements. Diamond may refer you to partners we work with; you’re free to choose any provider.
Request the offering package. Ask for the current rent roll, a trailing 12-month operating statement, copies of all leases and amendments, the security deposit ledger, utility bills, service contracts, recent capital work and permits, and any inspection reports the owner holds.
Underwrite before you offer. Rebuild the numbers with your own expenses, including property tax at the new assessed value; see how to analyze a rental property for a worksheet.
Send a letter of intent or a written offer. Many larger buildings start with a short letter of intent covering price, deposit, timelines and contingencies, followed by a full purchase agreement. Ask which purchase agreement form the sides will use and check that it covers rent rolls, estoppels, service contracts and the deposit transfer.
Run due diligence inside the contingency period. Audit leases against the rent roll, inspect every unit and system, review title and the survey, confirm permits, and check each unit’s rent-control and just-cause status.
Collect estoppels and finalize the loan. Tenant estoppel certificates confirm rent, deposit and lease terms in the tenant’s own words, and the lender will want them before funding.
Close and take over. Escrow prorates rent and expenses, the seller transfers or refunds deposits, and you send tenants the new owner and payment information within the deadline in Civil Code §1962.

Auditing the rent roll, leases and deposits

A rent roll is the seller’s summary, not proof. Match each line to a signed lease, then to rent actually deposited, and flag any unit where the rent roll, lease and bank records disagree. Look for concessions, side agreements, rent paid by a housing agency, and units occupied by a manager or the seller’s relatives.

Deposits deserve their own check. Under Civil Code §1950.5(c), most landlords can now collect no more than one month’s rent as security, with a two-month limit only for small landlords (natural persons, or LLCs whose members are all natural persons, who own no more than two rental properties with four or fewer units in total), so older leases may show larger deposits than new ones. Before the sale closes, §1950.5(j) requires the seller to give the buyer a written statement of each remaining deposit and any lawful deductions.

How the deposits move matters to you. Under §1950.5(i), the seller must either transfer the remaining deposits to the buyer and notify each tenant in writing, or refund them to the tenants with an accounting. If neither happens, §1950.5(k) makes the buyer jointly and severally liable with the seller for repaying them, so write the transfer into escrow instructions.

Checking each unit’s rent and eviction status

Rent rules attach to units, not to the building as a whole, so build a unit-by-unit table during due diligence. Statewide, the starting points are these:

Question	What state law says	Source
How much can rent rise?	No more than 5% plus the change in the cost of living, or 10%, whichever is lower, over any 12 months, unless the unit is exempt	Civil Code §1947.12(a)
Is newer housing exempt?	Yes, housing issued a certificate of occupancy within the previous 15 years, a rolling exemption	Civil Code §1947.12(d)(4)
When does just cause apply?	After a tenant has continuously and lawfully occupied the unit for 12 months, with a 24-month rule when adult tenants are added	Civil Code §1946.2(a)
What does a no-fault termination cost?	Relocation equal to one month’s rent, or a waiver of the final month; relocation payments are due within 15 calendar days of the notice	Civil Code §1946.2(d)
Can a city cap rents on this building?	Not on units with a certificate of occupancy issued after February 1, 1995, among other Costa-Hawkins exemptions	Civil Code §1954.52(a)

Local law can be stricter. Before you remove contingencies, read the rules for the city where the building sits: San Francisco apartment buildings, Oakland rent rules, Berkeley rent stabilization, the San Jose rent ordinance and our East Bay city-by-city table. For North Bay buildings, start with multifamily properties in Sonoma County.

If you plan to raise rents to market or move tenants out, price the building on the rents you can legally collect, not on a pro forma. Our just-cause eviction guide for landlords explains what a new owner may and may not do.

What to inspect on an apartment building

Inspect every unit, not a sample, and add trades a house inspection would skip. A sound scope covers:

Roof, drainage and waterproofing, including flat roofs and parapets.
Balconies, decks and raised walkways. Section 17973 required the first inspection of balconies, decks, stairways and walkways more than six feet above ground by January 1, 2026, then every six years, covering at least 15% of each type of element. Ask for every report and any repair permits; our SB 721 balcony inspection guide covers the details.
Structure and seismic status. Older wood-frame buildings with open ground floors may fall under a city retrofit program; see seismic retrofit requirements for multifamily buildings.
Sewer lateral. A camera inspection shows root intrusion, offsets and breaks; ask whether the city or sewer district has its own lateral rules at sale.
Electrical, plumbing, water heaters and boilers, including panel capacity, aluminum branch wiring, galvanized supply lines and shared equipment.
Fire and life safety, such as smoke and carbon monoxide alarms, exits and fire-rated assemblies.
Permit history, to compare legal unit count with what you see; unpermitted units affect both value and tenancy rights.

Under §17973(d), owners must keep balcony reports for two inspection cycles and deliver them to a buyer. If the seller has none, treat it as a missing compliance item and price the inspection and any repairs into your offer.

Estoppels, title, insurance and closing

Ask for estoppel certificates early, since tenants often take time to return them. Our page on tenant estoppel certificates explains what they confirm and what to do when a tenant won’t sign.

Order the title report as soon as you’re in contract, and read the exceptions for easements, recorded agreements, liens and any rent-restriction covenants. Get insurance quotes during the contingency period, because coverage cost and availability can change the numbers on an older building.

At closing, escrow prorates collected rent and prepaid expenses. A purchase is a change in ownership, so the county assessor reassesses the property to current market value (BOE), and you’ll receive a supplemental tax bill. Within 15 days of taking over, Civil Code §1962 requires you to give tenants the names, addresses and phone numbers of the owner or manager and the details of where rent is paid; until you comply, you can’t evict for rent that came due during the gap.

This is general information, not legal or tax advice; talk to a California real estate attorney or tax adviser about your situation.

Financing and the numbers that drive price

Lenders and buyers price apartment buildings from net operating income, which is rental income minus vacancy and operating expenses, before debt service. Our pages on net operating income and cap rates show how to rebuild a seller’s numbers with California property tax at the new assessed value.

If you’re selling a smaller property to buy the building, a tax-deferred exchange has strict identification and closing deadlines; line up a qualified intermediary before you list.

Questions people ask

How many units make an apartment building a commercial property?

For financing and pricing, five or more units is the usual dividing line: loans for one to four units follow residential programs, while five-plus-unit loans are sized mainly on the building’s income. Some state rules start earlier; the balcony inspection law in Health and Safety Code §17973 applies at three units.

What documents should I ask for before making an offer?

The rent roll, a trailing 12-month income and expense statement, all leases and amendments, the deposit ledger, utility bills, service contracts, permits for recent work, and any balcony, seismic or other inspection reports. Ask for the tenant estoppel form the seller will circulate.

Do security deposits transfer to me when I buy?

They should. Civil Code §1950.5(i) requires the seller to either transfer remaining deposits to you and notify the tenants, or refund them with an accounting. If neither happens, §1950.5(k) makes you jointly liable with the seller to repay them.

Does AB 1482 apply to the building I’m buying?

Possibly, unit by unit. Housing with a certificate of occupancy issued within the last 15 years is exempt from the state rent cap, and a city ordinance may apply instead. Check each unit’s status and the local rules before you rely on a rent increase.

Do I have to do an SB 721 balcony inspection after I buy?

If the building has three or more units and wood-supported balconies, decks or stairs more than six feet above ground, yes. The first inspection was due by January 1, 2026 and repeats every six years, and the seller must give you existing reports at sale.

What do I have to tell tenants after closing?

Within 15 days, give each tenant the owner or manager’s name, address and phone number and where and how to pay rent, as Civil Code §1962 requires. Confirm in writing how their deposits were handled.

How long does it take to buy an apartment building?

It depends on the contract and the loan. Commercial and agency loans often need more time for appraisal, inspection and estoppels than a home loan, so negotiate contingency periods that match the lender’s real schedule.

If you’re weighing your first five-plus-unit building, we can help you screen buildings, organize due diligence and compare the numbers against local rent rules. Talk with Diamond about investment property.

Sources & notes

Last reviewed October 2026 by Matthew Martinez.