A tenant-occupied two- or three-family can look attractive because income begins immediately. But the buyer is not purchasing only walls and projected market rent. The buyer may also inherit leases, payment histories, deposits, utility arrangements, maintenance obligations, and unresolved tenant issues.
The most common underwriting mistake is treating the listing’s rent roll as verified income. A better process reconciles each number to a document before calculating cash flow or “rental upside.”
Start with a unit-by-unit lease matrix
| Field | Document to verify it | Question it answers |
|---|---|---|
| Named occupants | Signed lease or tenancy records | Who is authorized to live there? |
| Lease type and end date | Complete signed agreement and addenda | When can terms potentially change? |
| Contract rent | Lease plus rent ledger | What is owed versus actually collected? |
| Security deposit and last month | Receipts, bank records, annual statements | What funds and obligations transfer? |
| Utilities | Lease, bills, meter information | Which costs belong to owner or tenant? |
| Parking, storage, laundry | Addenda and payment records | Is ancillary income documented? |
| Notices or disputes | Written notices and attorney records | Are there unresolved obligations or claims? |
Read every addendum. A one-page rent roll cannot show renewal options, included utilities, concessions, parking rights, pet terms, maintenance promises, or side agreements.
Reconcile scheduled rent to collected rent
Illustrative example only: assume a three-family is marketed with monthly rents of $2,400, $2,300, and $1,800.
Scheduled monthly rent = $6,500
Scheduled annual rent = $78,000
Now assume bank records and the ledger show Unit 2 missed two $2,300 payments during the prior 12 months, while the other scheduled rent was collected.
Verified collected rent = $78,000 − $4,600 = $73,400
Average collected per month = $73,400 ÷ 12 = $6,116.67
Collection shortfall = $4,600 ÷ $78,000 = 5.9%
These numbers are hypothetical, not a Greater Boston average or a client result. The point is methodological: underwrite from verifiable collections, then separately model how arrears, vacancies, concessions, or legal costs could affect the next year.
Below-market rent is not instant cash flow
A listing may compare current rent with a higher advertised “market rent.” Before capitalizing that upside, ask:
- Is the unit subject to a fixed lease, tenancy at will, subsidy, or other program?
- What renovations, permits, lead compliance, or utility changes would be needed?
- What vacancy and turnover costs occur before the higher rent begins?
- Is the comparable unit truly similar in size, condition, parking, laundry, and location?
- Has Massachusetts counsel reviewed the lawful process and timing for any proposed change?
Model current in-place income as the base case. Put future rent in a separate scenario with an explicit date, probability, capital cost, and vacancy assumption.
Treat tenant funds as liabilities, not free cash
Massachusetts security-deposit handling is highly technical. Under M.G.L. Chapter 186, Section 15B, when ownership transfers, deposits and accrued interest must be addressed through the statutory transfer process. The successor must provide required written notice within 45 days. Review the Attorney General’s landlord-tenant guide and this site’s detailed security-deposit checklist.
Before closing, reconcile tenant by tenant: original deposit, account balance, accrued interest, last-month payment, receipts, bank and account information, and transfer documentation. Do not assume a credit on the settlement statement cures missing records.
Verify the building, not just the leases
- Confirm legal unit and bedroom counts against municipal records.
- Check open permits, code matters, and documented complaints.
- Identify common and separately metered utilities.
- Compare owner-paid bills with the operating statement.
- Review lead, smoke/CO, and other property-specific compliance records.
- Inspect shared systems: heat, hot water, electrical service, roof, drainage, and common areas.
Build three underwriting cases
| Case | Income assumption | Use |
|---|---|---|
| Base | Current verified collections and current expenses | Can the property work as it operates today? |
| Downside | Arrears, vacancy, repairs, and higher owner-paid costs | Can reserves survive a difficult first year? |
| Upside | Documented future changes after lawful timing and required capital work | Is the improvement plan realistic? |
A disciplined buyer should be able to explain exactly which documents support every income and expense assumption. If a number exists only in the listing remarks, treat it as a question—not a fact.
Considering a tenant-occupied Greater Boston multifamily? Contact Jeong Park to organize the rent-roll reconciliation, document checklist, and scenario analysis before you commit.
Jeong Park is a Greater Boston real estate agent with eXp Realty, real estate investor, and data scientist serving English- and Korean-speaking buyers and investors.
Educational information only—not legal, tax, lending, accounting, property-management, or investment advice. Tenant rights and owner obligations are fact-specific. Consult qualified Massachusetts counsel and appropriate professionals.
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