Multifamily Underwriting

Multifamily underwriting begins with two primary data sources: the Trailing 12-Month (T-12) income statement and the current rent roll. The T-12 is the actual operating income and expense record for the past 12 calendar months — it represents what the property actually did, not what the seller's proforma says it should do. Never underwrite from a proforma alone. Examine the T-12 for: income consistency (are rents collected monthly stable, or are there months with significantly lower income suggesting vacancy or collection issues?); expense anomalies (extremely low maintenance or management expenses may indicate deferred maintenance or expenses not being captured); and non-recurring items (insurance proceeds, one-time fees, or owner loans that inflate income). Request bank statements and property tax records to verify the T-12 figures independently. The rent roll is a current snapshot of every unit in the building: unit number, tenant name, lease start/end date, monthly rent, and lease status (occupied, vacant, month-to-month). Cross-reference every unit on the rent roll with the T-12 income — total contracted rent on the roll multiplied by 12 should approximate gross annual income on the T-12; significant discrepancies suggest collection problems or unreported vacancies. Market rent analysis: for each unit type (1BR, 2BR, etc.), research current market rents for comparable units in the same submarket. Compare market rents against the roll's contract rents. Below-market tenancies represent upside — as leases expire and units turn over, rents can be raised to market, increasing NOI. Above-market tenancies represent risk — if a tenant paying 15% above market does not renew, NOI drops at that unit's next lease. The difference between current contract rent and market rent is called the loss-to-lease (or upside, if rents are below market).