Nine Mistakes Buyers Make When Buying an LA Apartment Building
Q4 2026
Key Takeaways
Most buying mistakes come from believing a number you have not checked.
The expensive ones in Los Angeles involve rent control, deferred maintenance and compliance, property tax reassessment, and borrowing at a rate higher than the building’s cap rate.
Each one is avoidable with a few weeks of disciplined due diligence.
1. Underwriting Rents the Building Cannot Charge
A pro forma that assumes below-market rents will move to market is a fantasy in a rent-controlled building. Under the Rent Stabilization Ordinance the owner generally cannot raise a sitting tenant’s rent beyond the allowable increase, which the City currently publishes at 3%, and units reach market rent only when tenants leave. Underwrite the rents in place, and treat the rest as upside. See our guide to the City’s 2026 RSO changes.
2. Trusting the Rent Roll
A rent roll is the seller’s claim. Compare it with the leases, the tenant estoppels, and the seller’s bank deposits. A building whose income does not hold up in due diligence is a common reason a deal reprices or falls apart.
3. Underestimating Deferred Maintenance and Compliance
Older buildings carry costs that do not show on the income statement: roofs, plumbing, electrical panels, and seismic retrofits, plus newer rules such as SB 721 balcony inspections, the stove and refrigerator requirement, and the air conditioning rules. Get quotes before you remove contingencies and price the work into your offer.
4. Forgetting the Property Tax Reassessment
The seller’s tax bill is based on an older assessment. When you buy, the building is reassessed at the purchase price, with Proposition 13’s base rate of 1% plus voter-approved assessments and direct charges. Model your own bill, not theirs.
5. Taking the Seller’s Expenses at Face Value
A seller’s summary can leave out or understate costs, and a slow leak can run for months. Pull the actual utility, insurance, and repair records. Each dollar of overstated income or understated expense is worth many dollars of price at a 6% cap rate. See utility bill diligence.
6. Borrowing at a Rate Above the Cap Rate
When the loan’s interest rate is higher than the cap rate, leverage lowers your cash return. In our worked example, a 6.0% cap rate building financed at 6.5% returned about 3.1% on the buyer’s cash. Run the numbers at today’s quote, and leave a cushion in the debt service coverage. See financing an apartment building and cap rate, cash-on-cash, and GRM.
7. Using the Wrong Comparable Sales
A cap rate in Santa Monica is not a cap rate in Koreatown, and a newer building does not price like a 1950s rent-controlled one. Compare with recent sales in the same neighborhood and age group. We publish 2026 ranges in our cap rates and prices by neighborhood guide and on each neighborhood page.
8. Not Planning the Exit
The day you buy is the day to think about selling. If your building could be priced above $5.4 million inside the City of Los Angeles, the Measure ULA tax applies to the whole price at sale, and the thresholds adjust every year. See hold or sell under Measure ULA and the calculator.
9. Going In Without a Team
A real estate attorney, a licensed inspector, a CPA, a lender, and a broker who knows the neighborhood each catch different problems. Skipping one to save money is how a manageable issue becomes an expensive one. Our due diligence checklist shows what each one should review.
We represent buyers as well as sellers. If you are looking at a building, contact us. This article is general information, not legal, tax, or investment advice.
Frequently Asked Questions
What are the most common mistakes when buying an apartment building?
Underwriting rents a rent-controlled building cannot charge, trusting the seller’s rent roll and expenses, underestimating deferred maintenance and compliance, forgetting the property tax reassessment, and borrowing at a rate above the cap rate.
Can I raise rents to market after I buy a rent-controlled building?
Generally not while tenants remain. Under the Rent Stabilization Ordinance the allowable annual increase is limited, and units reach market rent only when they turn over. Underwrite the rents in place.
Why do buyers need to think about the exit when they buy?
Because the cost of selling is part of the return. If a future sale could land above $5.4 million inside the City of Los Angeles, the Measure ULA tax applies to the whole price. See our Measure ULA calculator.
What team do I need to buy an apartment building?
A real estate attorney, a licensed inspector, a CPA, a lender, and a broker who knows the neighborhood. We represent buyers as well as sellers, so contact us if you are looking at a building.