2–4 units vs. 5+ units: two different markets
A duplex, triplex, or fourplex is financed like a house — buyers can use conventional and even FHA owner-occupant loans, and many are house-hackers or small investors. Five units and up is commercial: buyers use commercial or DSCR loans, underwrite the building on its net operating income, and expect a professional package. Which side of that line you're on changes who your buyer is, how you present the building, and how it's priced.
What buyers underwrite (so assemble it first)
- Rent roll — every unit, current rent, lease start/end, deposit held, and any concessions. Mismatches between the rent roll and the leases are the #1 reason deals re-trade.
- Trailing 12 months (T-12) of income and expenses — actual, not pro forma. Buyers will back out owner-specific items and add a management fee if you self-manage.
- Leases and estoppel certificates — tenants confirm in writing what they pay, what they've deposited, and that there are no side deals. Plan for this early; collecting estoppels can take weeks.
- Capital items — roof, plumbing, electrical, seismic-retrofit status (Los Angeles and San Francisco have soft-story ordinances), and any open permits or code cases.
- Utilities and who pays — master-metered buildings are underwritten differently.
Rent control and tenant protections don't end at the sale
Leases run with the property; the buyer steps into your shoes. In California, the statewide Tenant Protection Act (AB 1482) caps annual increases and requires just cause for many buildings 15+ years old, and local ordinances (Los Angeles RSO, San Francisco, Oakland, and others) can be stricter. A sale by itself is not just cause for eviction. Buyers know this and price it in — so disclose accurately, know which units are covered, and never promise “vacant delivery” unless it's truly achievable and lawful. Security deposits transfer to the buyer at closing.
How the sale usually runs
- Pricing. Your agent and, often, an appraiser price the asset off NOI, cap-rate and GRM comps, and unit mix — not a per-square-foot home comp. (See cap rate, NOI & GRM explained.)
- Marketing. An offering memorandum, the MLS plus commercial platforms, and direct outreach to investor lists. Showing occupied units needs proper notice (24 hours in writing is the norm in California).
- Offer & due diligence. Typically 15–30 days for the buyer to review documents, inspect units, and confirm financing; commercial buyers may also order a Phase I environmental report.
- Escrow & closing. Rents, deposits, and taxes prorate; the property is reassessed to the sale price under Prop 13; documentary transfer tax applies at the county level, with city surtaxes in some markets (Los Angeles adds a significant transfer tax above a threshold that adjusts annually).
The 1031 clock and the tax picture
If you plan to defer gain with a 1031 exchange, the deadlines are fixed: 45 days from closing to identify replacement property and 180 days to close on it, and the exchange must be set up with a qualified intermediary before your sale closes. Depreciation recapture and capital gains are real numbers at this scale — talk to your CPA before you sign a listing agreement, not after. (Our CPA guide covers who to hire.)