Buying a New Jersey rental building can provide income from the start. However, existing leases, deposits and tenant disputes may also affect you after closing. Before completing the purchase, review records showing what each tenant pays and which duties may transfer to you.
Consider reviewing these documents during due diligence:
1. Leases and addenda
Review every current lease, renewal agreements and any additional terms attached to them. These documents may cover parking, pets, utilities, upkeep and renewal rights after the sale.
2. Rent rolls and payment histories
A rent roll should list each unit’s rent, lease dates and security deposit. Compare it with payment records. Look for unpaid balances, late payments, discounts, free-rent periods or promises not included in the lease.
3. Tenant estoppel certificates
When available, ask for certificates that tenants have signed. They should confirm the rent, deposit, lease dates and any agreements with the seller. These statements can flag conflicts and reduce disputes over what the tenants were promised.
4. Security deposit records
Ask for deposit notices and bank records showing where the money is held and how much interest it has earned. New Jersey law requires the seller to transfer all residential security deposits and interest to the purchaser and notify the tenants within five days of the property’s transfer or conveyance. You become responsible for those deposits even if the seller does not transfer the full amount.
5. Tenant notices and dispute records
Review complaints, default notices and pending court matters. These records may reveal disagreements involving repairs, rent payments or lease violations that could continue after closing.
6. Registration and inspection records
Check state and municipal landlord registrations, inspection reports and open violations. Depending on the property and municipality, you may also need a resale certificate, inspection or a new certificate of occupancy required upon the change of ownership.
Look beyond the advertised rental income
A fully occupied building is not necessarily a reliable investment if its rental income depends on expired leases, undocumented discounts or unresolved tenant claims. Identifying those issues may affect the price, closing date or other contract terms you negotiate. An attorney can provide help with a real estate transaction by reviewing whether the documents support the deal the seller has presented.