Start with the seller package
Small apartment sellers are often long-time owners who self-manage, and their records range from tidy spreadsheets to a shoebox. Ask for the same package every time, in writing, as early as your contract allows:
- A certified rent roll showing every unit, the tenant, lease start and end, current rent, deposit and any concessions
- Copies of every current lease and any lease amendments
- A trailing 12-month income and expense statement, plus the prior full year if you can get it
- Recent utility bills for anything the owner pays
- The current property tax bill and the appraisal district notice of value
- Insurance declarations and loss history
- Service contracts (laundry, trash, pest control, landscaping) that may transfer
Then tie the rent roll to the bank deposits. A rent roll that shows eight occupied units while deposits support six is the most common surprise in a small apartment file.
Use the option period for financing homework
Many Texas purchase contracts use a paid option period that lets the buyer terminate for any reason during a short window. Treat it as your financing deadline. In that window, get insurance quotes on the actual building (wind, hail and flood all matter in Texas), estimate the next tax bill based on your purchase price rather than the seller's current value, and send us the package so we can tell you which wholesale programs accept the unit count, the location and the condition.
If the numbers only work on the seller's figures, renegotiate or walk while the option period is open. Our DSCR math worked example for an 8-unit building shows how quickly a higher tax bill changes coverage.
How the loan is sized
The lender looks at two limits and uses the lower one: the loan the building's coverage supports, and the loan the appraised value supports. On small apartment buildings, coverage is often the tighter limit, especially after taxes reset. Programs also set their own minimum credit, reserve and experience requirements, and some limit how much of the down payment can come from partners or seller credits.
If repairs are needed at closing, some programs allow a holdback or require the work to be finished first; many will not finance a building with major deferred maintenance at all. That is the point where bridge-to-DSCR is usually the better plan.
Closing details that trip up small apartment purchases
- Security deposits must transfer to you with an accounting for each tenant.
- Estoppel letters or tenant certifications may be required to confirm rents and deposits.
- Entity documents if you are buying in an LLC; see how to hold title.
- Security devices and smoke alarms under the Texas Property Code are your duty on day one; see the Chapter 92 checklist.
Common questions
Can I use the seller's pro forma rents to qualify?
Generally no. Lenders use in-place rents from current leases, checked against the appraiser's market rent estimate.
Can I buy a 5-10 unit building as my first apartment property?
Some programs accept first-time owners of a 5+ unit building, often with more reserves or a property manager. Others want prior rental ownership. We tell you which is which.
Should I estimate taxes on the sale price?
Yes. Appraisal districts can reflect a recent sale in the next valuation, so budget the next bill on your price, not the seller's current value.
Business-purpose financing for non-owner-occupied 5-10 unit buildings only. Programs, terms and eligibility vary by wholesale lender and change over time. Nothing here is a commitment to lend.