The T-12 (trailing twelve months) and rent roll are the seller's version of the truth. Your job — and the lender's — is to normalize them into what the property actually earns.
The rent roll
A snapshot of every unit's current tenant, lease dates, rent, deposits, and status.
What to verify:
- Occupancy — physical vs. economic. Ghost tenants happen.
- Lease dates — a rent roll of month-to-month leases is a red flag.
- Rent vs. market — under-market rents are opportunity; over-market rents are risk.
- Concessions — free rent, gift cards, etc. Ask.
- Delinquency — pull the last 3 months of bank deposits and match against rent roll.
The T-12
Monthly income and expense statement covering the past 12 months.
Normalize the income:
- Add 5–7% vacancy if T-12 shows less.
- Strip one-time income (application fees, late fees over baseline).
- Adjust for rent bumps during the year (annualize based on latest rents).
Normalize the expenses:
- Management fee — add 8–10% even if self-managed.
- Taxes — reassessment on sale can spike 20–40% in some states.
- Insurance — get a current quote; hurricane markets have doubled.
- R&M / capex — add $300–500 per unit per year of reserves.
- Utilities — verify who pays.
Lender re-underwriting
Expect the lender to re-underwrite your T-12 and land 10–20% lower than the seller's NOI. That's normal. Model it in advance — if the deal still hits the DSCR, you'll close.
Red flags
- Missing months in the T-12.
- Rent roll with zero delinquency (unrealistic).
- OpEx below 40% of gross (either amazing or hiding costs).
- Management fee of 3–5% (usually indicates owner-manager with hidden labor cost).
- Big fluctuations in R&M month-to-month.
The 3-tab spreadsheet
Build every underwriting model with three tabs:
- As-reported — copy the seller's numbers verbatim.
- Adjusted — your normalized version.
- Stress — 90% occupancy, 15% expense inflation, 100 bps rate rise. If it still cash flows, you have a deal.