Four missing lines made this fourplex look worth $816,799, not $600,800

A small apartment building is priced off its income. Change the income and you change the price, which is why the numbers a seller hands you are worth reading line by line while you still have an inspection period.

Due diligence is that reading. Not a feeling about the building: a stack of documents, each one standing behind a number in the listing.

What is a T12, and why does it set the price?

A T12 is the trailing twelve months, the building’s income and costs for the last year, month by month. A rent roll sits beside it, listing each unit, who is in it, what they pay, and when the lease ends.

Those two documents produce net operating income, or NOI: the rent you collect, minus every operating cost, before the mortgage. NOI divided by the price is the cap rate. Turned around, NOI divided by the return you want is the price you can pay. So a dollar of NOI that is not really there still sells for what a dollar is worth at the cap rate, which on a 7% deal is about $14.

What does the seller’s version of this fourplex look like?

The same building, twice. One column is a T12 that looks clean and leaves four things out. The other is the same rents run through the calculator’s own assumptions.

The building: $499,000, four units at $1,575 a month, property taxes of $6,400 a year, insurance of $3,600, and $450 a month of water, sewer and trash that the owner pays. The seller’s column assumes 2% vacancy and 2% of rent for repairs, with nothing for replacements or management. The calculator’s column assumes 6% vacancy, 5% for repairs, 5% for replacements and 8% for management. Those percentages are the example’s.

These are example figures, not a forecast for any market.

Which lines does a seller leave out?

Four, and none of them is a trick. They are the costs an owner who does his own repairs, and has not replaced a roof yet, genuinely does not see.

• Management, $6,048 a year. If the seller does the work, it is not in the T12. It will be in your numbers unless you do the work too.
• Replacements, $3,780 a year. Roofs, boilers, water heaters and appliances never appear as a monthly cost. They appear once, in one month, for thousands.
• Repairs at 2% rather than 5%, $2,268 a year. A building whose owner deferred work is the one most likely to need more than average, not less.
• Vacancy at 2% rather than 6%, $3,024 a year. A fourplex has four units, so one turnover is a quarter of the building moving at once.

That is $15,120 of NOI a year. Here is what it is worth as price.

A gap of $215,999 in what the building is worth, from four lines, on a property listed at $499,000. Nobody had to lie for that to happen.

How do you check a rent roll against the leases?

Line by line, with the leases in your hand.

Ask for every executed lease and match four fields to the rent roll: the rent, the start and end dates, the deposit held, and any concession such as a free month. Then ask each tenant to sign an estoppel certificate, a short statement of what they pay, what they have paid, and what the landlord has promised them. Where the estoppel and the rent roll disagree, the estoppel is the one with a tenant’s signature on it. A lease below market is not a reason to walk, it is a number, and its end date is when that number changes.

What does your lender check on its own?

Your lender re-checks the rents, and it does not take the T12’s word either.

Fannie Mae’s section on rental income from the subject property, dated 2 September 2026, says that where a lease transfers to the borrower on a purchase, the lender obtains a copy of the fully executed lease, and that it must be supported by Form 1007 or Form 1025. Form 1007 is a Single-Family Comparable Rent Schedule. Form 1025 is the Small Residential Income Property Appraisal Report, the form for a building this size. An appraiser’s opinion of market rent goes next to the lease, in other words.

If market rents do not reasonably support the reported gross rents, the guide says the lender must document the income’s stability, provide a written analysis, or use the lesser amount. On a refinance it also asks for the most recent IRS Form 1040 including Schedules 1 and E, and repair expenses on Schedule E have to reflect renovation or rehabilitation costs and confirm fewer than 365 Fair Rental Days to support the time the property was out of service.

Worth knowing before it surprises you: the rent your loan is sized on can be the appraiser’s figure rather than the seller’s.

What do you walk through before you close?

The physical side is the other half, and most of it tells you when the replacement line comes due.

• Every unit, including the ones the seller would rather you saw last.
• The age of the roof, of each water heater, and of the furnace or boiler, plus the electrical panel.
• The sewer line, by camera, on anything built before about 1970.
• The county’s current tax rate, not the seller’s last bill. The analysis mistakes post works through what a tax reset does to a deal.
• An insurance quote for the address, rather than a share of the price.

What do you do with what you find?

Put it in the model.

Each finding turns into one of four things: a lower price, a credit at closing, a repair the seller makes first, or a reason to walk. Then re-run the building and look at two numbers, the NOI and whether the cash flow still clears your lender’s coverage requirement. In the example the calculator’s column clears $849 a month at a debt coverage of 1.32, where the seller’s version promised $2,109 and 1.79.

Put your own figures in the multifamily calculator: each unit’s real rent in the rent roll, then vacancy, repairs, replacements and management set to what you will actually spend. The multifamily analysis guide covers the rent roll arithmetic, and the value-add post shows what raising those rents later is worth at a cap rate.