One of the central issues in purchasing an apartment building is using due diligence to determine the facts. When you purchase an apartment building as an investment, the same rules as purchasing a home do not apply, and your diligence in verifying the seller's statements is critical and worthy of your full attention to the details.

An apartment building is an investment. As such, the amount of disclosure required from the seller is not the same as is typical in buying a single-family home. There are few if any consumer protection laws to shield you from an unscrupulous property owner. The 'Buyer Beware' warning bells need to go off in your mind, and you should be skeptical about everything the seller says even if it is in writing.

There will be few laws protecting you. Except in cases of outright fraud, your only protection will most likely be the provisions of the contract, and your efforts to verify the statements of the seller. That is why the due diligence provisions of the contract are critical to you. There are risks involved in any investment, and as in any investment, you need the facts to make an informed decision.

Hire an experienced attorney who routinely works with real estate contracts. Do not rely on a general practitioner. Find a lawyer with experience at the due diligence provisions you will need to successfully invest in an apartment building.

Critical elements for you to have the seller certify as part of the contract, with rights for you to verify are: (1) the rent roll and lease contracts; (2) the physical condition of the property; 3) the operating statement detailing income, expenses, with a right to audit; 4) copies of all outstanding service contracts; and, 5) compliance with local laws such as zoning, occupancy permits, and compliance with building codes.

The rent roll and leases. The rent roll should be a full list of the tenants living in the property, inclusive of when their lease started and when it ends, the rents paid, and the amount of security deposit being held by the current owner.

There are three steps to verifying the accuracy of the rent roll. First, compare the actual lease to the rent roll. If there is any variation, request a written explanation. Secondly, get written verification of the lease terms from all of the tenants (estoppel letters). The current owner will need to provide you with a letter on their letterhead for this purpose, but have the responses sent directly to you.

The Physical Inspection. Demand the right to inspect the building fully, or to have your representatives do so. This includes inspecting the interior of every apartment, the foundation, the roof, the wiring, the plumbing, and any common areas. Keep detailed notes of the condition of the apartments, as well as their status as occupied or vacant.

The physical inspection should take place after you have audited the rent roll and operating statements. Keep your eyes open for anything suspicious or out of the ordinary, or does not match with those documents. Do not purchase the property until you have visited each and every apartment. Take pictures where possible.

The operating statement. Get both annual and month-to-month operating statements for the previous twelve months from the seller. Compare the income against your verified rent roll. Keep track of any variations. Check all expenses, and spot audit a variety of utility bills, maintenance and service invoices, and invoices for purchases.

Service and other contracts. Review the provisions of every contract related to the property, or have your attorney do so. Some contracts are assignable by the seller, some have provisions that stick with the property, and some are cancellable upon transfer of ownership. Be sure you understand the impact these contracts truly have on the operating statements.

Compliance with laws. All of these items can be verified through a local governmental agency. Do not assume just because there is an apartment building on the lot that it is permitted to be there. Make sure there are not any outstanding violations of any law that will affect the property, because you will be inheriting the problem as soon as your name goes on the deed.

Always have the seller certify as true and accurate the first four items on the list. If something crops up after the sale and it was not disclosed, you may have recourse against the seller in the courts. If you have done your due diligence, you will have significantly reduced this risk.