Guide
A Trailing 12-Month statement (T12) is the actual income and expense report for a property over the most recent 12 months. Unlike a proforma, which projects what could happen, the T12 shows what actually happened. It's the most important document you'll review when underwriting a multifamily acquisition.
Brokers typically present two sets of financials: the trailing actuals (T12) and a proforma projection. The proforma shows what the property could earn under the broker's assumptions — often optimistic ones. The T12 shows what the property actually earned.
Always start your underwriting with the T12. If the proforma projects $50,000 more in NOI than the trailing actuals, you need to understand exactly where that upside is supposed to come from — and whether it's realistic.
Gross Potential Rent (GPR): The total rent the property would collect if every unit were occupied at the current lease rate for the full 12 months. This is your starting point. Compare it to market rents — if GPR is significantly below market, there may be upside. If it's above market, there may be a correction coming.
Vacancy & Credit Loss: The actual rent not collected due to vacant units (vacancy) and tenants who didn't pay (credit loss). Look at this as a percentage of GPR. For stabilized multifamily, 3-8% is typical. Above 10% signals a problem — either the property is hard to rent, the management is poor, or there's a market issue.
Concessions: Free rent, move-in specials, or other incentives given to attract or retain tenants. High concessions combined with high vacancy is a warning sign. It means the property is having trouble competing even with discounts.
Other Income: Revenue beyond rent — laundry machines, parking fees, pet rent, application fees, late fees, storage units, cable/internet fees. This can be surprisingly significant. On a 50-unit property, $50/month per unit in other income adds $30,000/year to NOI.
Property Taxes: Often the single largest expense line item. Verify the current tax assessment and check whether it will be reassessed upon sale. In many jurisdictions, a property sale triggers a reassessment at the purchase price, which can significantly increase the tax bill. Always underwrite to the post-sale assessment, not the current one.
Insurance: Property insurance including liability, fire, flood (if applicable), and umbrella coverage. Insurance costs have risen significantly in recent years, especially in coastal and disaster-prone markets. Verify that the current policy is adequate and get quotes for post-acquisition coverage.
Repairs & Maintenance: Day-to-day upkeep — plumbing fixes, appliance repairs, painting, carpet replacement, general maintenance. Look at the trend over 12 months. Unusually low R&M might mean deferred maintenance. Unusually high might indicate a one-time issue or a property in poor condition.
Management Fee: Typically 5-8% of effective gross income for third-party management. If the owner self-manages (showing 0% or a below-market fee), add a market-rate management fee to your underwriting. Even if you plan to self-manage, you need to know what the property costs to operate with professional management.
Utilities: What the owner pays vs. what tenants pay matters enormously. Owner-paid utilities (water, sewer, trash, gas, electric) can be 15-20% of total expenses. If utilities are currently owner-paid, consider whether RUBS (Ratio Utility Billing System) could shift some costs to tenants.
Payroll / Contract Services: On-site staff costs — maintenance technicians, leasing agents, property managers. For smaller properties (under 50 units), this may be a contract service rather than payroll.
Net Operating Income: Effective Gross Income minus Total Operating Expenses. This is the number that drives every other metric in your underwriting. Make sure the NOI on the T12 matches what you'd calculate yourself from the line items above. Discrepancies usually mean the seller is including (or excluding) items that shouldn't be there.
Below the line: Some T12s include debt service, capital expenditures, or depreciation below the NOI line. These are not operating expenses and should not be included in NOI. If they're mixed in, back them out.
Stop spending hours reading and re-typing T12 data into spreadsheets. Upload the T12 as a PDF and Dealyze extracts every income and expense line item, calculates NOI, and runs the full underwriting model automatically.
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