Sophisticated sellers of small multifamily properties present two documents to serious buyers: the rent roll and the T-12 (trailing twelve months of income and expenses). Reading them critically is a core skill — sellers' numbers are marketing documents until you verify them.
Part 1: The Rent Roll
A rent roll lists every unit, its tenant, lease terms, and rent. A good one includes: unit number, beds/baths, square footage, tenant name, lease start/end, current rent, and deposit held.
Step-by-Step Audit
- Check rent against leases. Request copies of all leases. The rent roll says $1,450; the lease says $1,350? The lease wins.
- Look for below-market leases. A unit at $950 in a $1,300 market is a liability with a countdown clock — but it also means you can force appreciation through turnover. Price the gap into your offer.
- Check lease expiration staggering. All four leases expiring the same month is a vacancy cliff. Ideally, expirations are spread across the year.
- Verify deposits. Security deposits are the tenant's money and transfer at closing — confirm the exact amount and your state's escrow rules.
- Watch for family members at discounted rent. "My cousin pays $600" is not market rent, and it ends the day you close.
- Cross-check against the T-12. If the rent roll shows $4,000/month but the T-12 collected $3,400/month average, someone is late, in arrears, or the roll is fiction.
Part 2: The T-12 Operating Statement
The T-12 shows 12 months of actual income and expenses. It is the closest thing to the building's medical record.
Line-by-Line Verification
| T-12 Line | How to Verify | Red Flag |
|---|---|---|
| Rental income | Sum of leases × 12; compare to deposits | Income spikes in recent months |
| Vacancy | Compare to rent roll gaps | Under 3% claimed on older building |
| Taxes | Call county assessor | Missing — reassessment coming after sale |
| Insurance | Request the declarations page | Quoted on pre-sale "as-if" basis |
| Utilities | 12 months of bills from the utility | "Estimated" |
| Repairs | Ask for invoices of big items | Suspiciously low = deferred maintenance |
| Management | 8-10% of EGI even if self-managed | Zero because "owner does it" |
| CapEx | Should be a real reserve line | Missing entirely |
The Five Adjustments That Reveal True NOI
- Replace actual management with market management (8-10% of EGI), even if the owner self-manages. You will either pay a manager or earn that money doing the work — either way it has a cost.
- Normalize utilities if the owner's usage patterns are unusual (e.g., a unit was vacant and unheated).
- Add a real CapEx reserve (see our CapEx budgeting guide) — most seller T-12s omit it entirely.
- Re-estimate taxes post-sale. Many jurisdictions reassess on sale. A building assessed at $200,000 selling for $400,000 may see taxes jump 40-80%.
- Remove one-time items: a single $9,000 tree removal or a lawsuit settlement should be excluded — but ask for the invoice to confirm it was one-time.
Worked Example: Seller NOI vs. True NOI
A fourplex T-12 claims: income $46,800, expenses $18,700, NOI $28,100.
Your adjustments:
- Add market management (9% of EGI): −$4,200
- Add CapEx reserve (10% of GSI): −$4,700
- Post-sale tax reassessment: −$2,400
- Remove one-time roof patch (verify invoice): +$3,000
True NOI: $19,800 — a 30% haircut. At a 6.5% cap rate, that is the difference between a $432,000 valuation and a $305,000 one. This single exercise is why T-12 audits change offers by six figures.
What to Request From the Seller
- Current rent roll + all leases
- T-12 income and expense statement
- 12 months of bank statements or deposit records (verifies income)
- Tax bill, insurance declarations page, utility bills
- Invoices for any major repairs in the last 24 months
- W-9s or 1099s for any contractors (confirms expenses are real)
Run the Corrected Numbers
Once you have adjusted the T-12, plug the verified figures into the Multifamily Cash Flow & NOI Calculator to get the NOI, cap rate, and cash-on-cash return that reflect reality — then make your offer from there.