Before Buying a Rented Building: How to Verify the Income Is Real

In a building sale, “annual income” always needs a second question: contracted or collected? The gap between those two figures can change the yield and the value of the deal. A reliable review therefore starts unit by unit rather than with one headline number.

Build a complete unit schedule

List every unit with its type, occupancy status, annual rent, lease start and expiry, and payment schedule. A vacant shop or apartment stays marked vacant; expected future rent should not be mixed into current income.

Reconcile leases with collections

Collect the tenancy contracts and compare them with cheques, transfers or other collection evidence. A lease at a stated rent does not prove the full amount was received. Record arrears, bounced cheques, discounts and settlements.

Watch leases approaching expiry

If a large share of building income comes from leases ending within months, you are not only buying last year’s rent; you are also taking renewal risk. Check current market rent and tenant position instead of assuming every lease renews on the same terms.

Deposits and prepaid rent are not ordinary annual income

Separate refundable deposits from prepaid rent and from income relating to periods after ownership changes. The sale agreement should state how these amounts are adjusted between seller and buyer.

Put owner-paid expenses in one file

Maintenance, lift contracts, cleaning or security, common utilities, insurance and service agreements reduce what the investor keeps. If expenses are incomplete, do not calculate a “net” yield as if they were zero.

Do a final reconciliation before transfer

Update the unit schedule before completion because occupancy and collections can change between first negotiation and transfer day. Ask for a final statement of what has been received, what remains due and who is entitled to future payments.