When you are looking and evaluating deals, you will see two documents that are very important. You will see a T12 and a Rent Roll from each property. These two documents are crucial in seeing if this particular asset is performing great, has great built-in upside if it is a value add property, and that it is trending higher in income and occupancy. This will able to help you to project if this property will perform well because of the trends.
The “T” in T12 means the latest financial month and the numbers after the letter T is the last 12 months from the latest financial month. The two you will see the most often is the T12 and the T3. These statements are used to see the performance or degradation of a property. Most lenders underwrite using the T3 but with the syndicator’s projected expenses to decide on loan terms.
There are two major sections of a T12: above the line and below the line. The line means the NOI. Above the line is all the operating income and operating expenses. Below the line is the mortgage expenses, capital expenses, and any one time discretional expenses. Above the line shows the property’s value and below the line shows other expenses that affect your CASH FLOW. You may see some of the above and below the line items mixed with each other. You will have to be careful when looking at a T12 to make sure you are reading it correctly.
About Rent Roll
The second document that you will see is a Rent Roll. A rent roll is the property owner’s representation of rental income. The rent roll generally consist of the below information:
- Current Income Stream
- Market rate
- Sqft of the units
- Unit #
- Unity Type/Configuration
- Physical Occupancy %
- Move Ins/Move Outs/Renewals
- Deposit or Surety Bond amount
- Recurring concessions given to residents
Some other items to look for on a rent roll is the date of when this report was generated, the name of the property management company over the asset, occupied date of an unit, vacant date of an unit, and if a resident was given a notice to vacate (NTV). Knowing how to read and interpret these two financial statements will allow you to choose an asset that will be aligned with your financial goals in real estate investing.