Top 10 T12 Line Items to Focus On
1. Gross Potential Rent (GPR)
- The total rent possible if all units were occupied at market rents.
- Use this to compare against actual collected rent and uncover loss-to-lease.
2. Loss to Lease
- The gap between GPR and actual rents due to under-market leases.
- Indicates value-add opportunity through rent increases or lease renewals.
3. Vacancy & Credit Loss
- Includes physical vacancy, bad debt, and concessions.
- High numbers here signal issues with occupancy, tenant quality, or management.
4. Other Income
- Laundry, pet fees, RUBS (utility reimbursements), application fees, etc.
- Healthy other income can boost NOI and valuation.
5. Total Operating Income
- Sum of all revenue sources after accounting for loss-to-lease and vacancy.
- Your starting point for NOI analysis.
6. Repairs & Maintenance (R&M)
- Day-to-day upkeep expenses (not capital improvements).
- Unusually low R&M might indicate deferred maintenance; high R&M might signal inefficiency.
7. Payroll or Contracted Management
- On-site staff wages or third-party property management fees.
- Important for determining operational efficiency.
8. Utilities
- Often a top 3 expense. Evaluate if the owner is passing costs through (RUBS) or absorbing them.
- Can identify opportunities to improve energy efficiency or billing practices.
9. Property Taxes
- Review current vs. projected taxes based on reassessment post-sale.
- Underestimating this can skew pro forma NOI significantly.
10. Net Operating Income (NOI)
- Total income minus operating expenses (excluding debt service and capex).
- The core driver of valuation in multifamily underwriting.
Bonus: Watch Out For
- Capital Expenses (CapEx) – often excluded from NOI but critical for understanding true cash flow needs.
- Insurance – rising costs can affect your expense assumptions, especially in certain regions.
- Professional Fees / Legal – spikes may indicate litigation or other issues.