Reading a T-12 and a rent roll without taking either at face value

A trailing twelve-month operating statement and a current rent roll are the core of any multifamily package. Neither is audited. Start by making them agree with each other. The rent roll's annualised scheduled rent should tie to the gross potential rent on the T-12. When it does not, something changed during the year — units renovated and re-leased, a block of tenants who left, concessions handed out — and that something is usually the story of the deal. Then make the T-12 agree with third parties. Property tax to the county's record. Insurance to an actual current quote rather than last year's bill. Utilities to the utility statements. Payroll to what the roles really cost. The lines that are almost always understated by an owner-operator are management, maintenance and a replacement reserve, because the owner does the work and defers the capital. On the rent roll, the interesting columns are not the rents. They are lease expiry dates — everything expiring in the same ninety days is a risk, not a coincidence — the concession column, how many tenants are month-to-month, and whether any units are occupied by family, staff or the owner. Those show up as income and do not behave like income. Finally, ask for bank statements and the tax return for the entity. Where an owner-prepared statement and a return disagree, the return is the one filed under penalty of perjury. None of this requires a consultant. It requires refusing to treat the seller's spreadsheet as data. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com