Updated August 16, 2026
Buyers spend most of their underwriting energy on income and most of their post-closing surprises on expenses. The income side is verifiable — leases, deposits, the rent registry. The expense side is where a seller's operating statement and your future reality diverge, and in Los Angeles in 2026 two line items do almost all of the damage. Get those two right and the rest is arithmetic.
Property tax, because yours is not theirs. California reassesses on a change of ownership. The seller's tax line reflects their assessed value, which on a building held since the 1980s may be a small fraction of your purchase price. Your line is roughly your purchase price multiplied by the 1% Proposition 13 base rate plus voter-approved debt service and direct assessments — which in most LA City tax rate areas lands modestly above 1.1%.
On a $6,000,000 purchase that is roughly $66,000 a year. If the seller's statement showed $9,000, you have just found a $57,000 hole in the net operating income, and capitalized at a market cap rate that is a very large number. This is the most common and most expensive underwriting error I see.
Check the tax bill for direct assessments too. That is where a PACE assessment shows up, and it is senior to your mortgage.
Insurance, because the market repriced. Habitational insurance in Los Angeles County has moved sharply since the January 2025 fires. Carriers have withdrawn from higher-hazard areas, pushing buildings toward the California FAIR Plan combined with a difference-in-conditions policy at a materially higher total cost.
The seller's premium reflects their loss history, their carrier relationship and possibly a policy written before the shift. Get your own quote in the first week of diligence. It is free, it is fast, and it moves the number more than anything else you will order.
Management. Carry a market rate even if you intend to self-manage. Your lender may require professional management, your time has a cost, and a buyer of your building later will underwrite it regardless.
On-site management. California requires a resident manager for buildings of 16 or more units. That is a real cost — a unit at reduced or no rent, plus wages — and on a statement where the seller counted the manager's unit as market income, the income is overstated and the expense is missing at the same time.
Utilities. Which are owner-paid, and whether the building is master-metered. Master-metered gas or water on an older LA building is a genuine expense exposure, and it is the reason sub-metering projects pay back.
Repairs and maintenance. A seller's actual spend on a building they have owned for thirty years may reflect deferral rather than efficiency. Underwrite what the building needs, not what they spent.
Reserves and capital. Roof, plumbing, electrical, sewer laterals. On pre-1978 stock these are not remote possibilities.
Compliance costs. RSO registration fees, the Just Cause Eviction Ordinance's per-unit enforcement fee on non-RSO LA City buildings, inspection program fees. Individually small, collectively real.
Start with the trailing twelve months of actuals, not the pro forma and not an expense ratio. Ratios are a sanity check at the end, never an input.
Then adjust line by line for what changes with ownership:
Then sanity-check the total. If your adjusted expenses come out far below typical for the building's vintage and size, you have missed something. If they come out far above, find out why — it may be a real problem or a fixable one, and either way it is information.
Owner-performed work shows as no cost. An owner who does their own maintenance has a genuinely lower expense line and you will not replicate it.
Deferral looks like efficiency. Low repairs on an old building often means work not done, which arrives as capital expenditure in year two.
A vacant manager's unit may appear as income. Or not appear at all.
Trailing twelve months may exclude an annual item — a systematic inspection fee, an insurance installment, a tax supplemental — depending on where the window falls.
None of these require anyone to be dishonest. They are simply the difference between a statement of what happened to the seller and a forecast of what will happen to you.
What expense ratio should I use for LA multifamily?
Use ratios only to check your work, never to build it. Ratios vary enormously by vintage, size, which utilities are owner-paid, and whether the building is professionally managed. A ratio applied as an input hides exactly the two line items that matter most here.
Will my property tax really go up that much?
If the building has been held a long time, yes. Reassessment on a change of ownership is the default. Model it from your purchase price rather than from the seller's bill — and remember the supplemental assessment that arrives after closing to true up the part-year.
Can I appeal the reassessment?
There is an appeals process based on the property's actual market value, and it is worth knowing about if you believe the assessed figure exceeds what you paid. It is not a strategy for avoiding a reassessment you triggered by buying.
How do I estimate insurance before I own it?
Give a broker who writes habitational risk the address, year built, unit count, construction type, loss history and retrofit status. You can have a workable indication in days, and it is the most valuable free thing in your diligence.
Two lines — property tax recalculated from your price, and an insurance quote in your name — account for most of the distance between a seller's operating statement and your first year of ownership. Fix those two before you bid, and your model will be closer to reality than most of the offers on the table.
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