Are owners willing to show their T12?

Multi-Family and Apartment Investing
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Are owners willing to show their T12?

Justin Young
Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes

Aloha BP!

I've been trying to ask owners of multi-family if they'd be willing to send me their trailing 12 to help educate myself but I haven't found any takers? Is this taboo to do or should I continue asking? To start off, I don't tell them that I plan to purchase the property because I don't have the courage to do so but in the mean time, I'd like the build that courage by being able to make sense of the T12 so when I feel the time is right, I can make a quicker decision based on what I've learned and the information being shown to me. Any advice from the BP community?

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Michael Le
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y

You're not going to find any business owners willing to give you important financial information just so you can practice underwriting. There are plenty of other ways for you to make sense of a T12. Look through this link for some learning. Understand this well before worrying about underwriting a real T12.

http://abimultifamily.com/abinsight-the-art-of-multifamily-underwriting-part-1-definitions/

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    Are you requesting this information through an agent or broker? They arnt going to provide this information to any joe schmoe off the street.

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    1Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    You're not going to find any business owners willing to give you important financial information just so you can practice underwriting. There are plenty of other ways for you to make sense of a T12. Look through this link for some learning. Understand this well before worrying about underwriting a real T12.

    http://abimultifamily.com/abinsight-the-art-of-multifamily-underwriting-part-1-definitions/

    9Reply
  • Nathan Click
    Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
    9y

    @Justin Young - Financial reports, such as the trailing 12 month report, are very important and should be evaluated by any borrower.  You'll also want copies of P&L statements and current balance sheets.  You may want to even go back two to three years, if you are seeking good stabilization with the property.  Although this information is critical to evaluate a deal, it only makes since to give it to parties who are potential buyers.  Most sellers will screen out possible buyers from "tire kickers."  This is a practice that not only saves time but protects sensitive information.  To get that kind of information from a seller you have to be a real buyer, meaning you have a real interest in the asset and the ability to acquire it.  Some sellers will have you get under contract first, others will ask for a soft commitment or proof of funds, and others will only work with you if you have a buyers agent.  All of these are indicators that you are worth their time. 

    6Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Justin Young:

    Aloha BP!

    I've been trying to ask owners of multi-family if they'd be willing to send me their trailing 12 to help educate myself but I haven't found any takers? Is this taboo to do or should I continue asking? To start off, I don't tell them that I plan to purchase the property because I don't have the courage to do so but in the mean time, I'd like the build that courage by being able to make sense of the T12 so when I feel the time is right, I can make a quicker decision based on what I've learned and the information being shown to me. Any advice from the BP community?

    Justin,

    Don't you ever tell them that you you're not going to purchase the property! Do not use the phrase or even a thought of what I emphasized in bold font quoting your text! (... I don't tell them that I plan to purchase the property because I don't have the courage to do so...)

    If you mention that you're only practicing you will never get a meaningful answer!

    Change your thinking and change your language! You are going to purchase a property but it has to fit into your box (you need to defined what your target deal is but don't tell that to the sellers). That's all they need to know. 

    Nick

    1Reply
  • Marc C.
    Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
    9y

    So many seller financials are just a joke. At least the "mom and pop" operators I deal with. I care most about the top line number...rents collected and other income collected. Expenses are easy enough to project, and my numbers for maintenance and turnover are usually much higher than the current owner ever spends anyway. I do want to see how their bank statements compare with their bookkeeping file and tax returns. 

    1Reply
  • Peter MacKercherBusiness Member
    Residential Real Estate Broker · Saint Louis, MO · Member since 2014 · 1k+ posts · 567 votes
    9y

    @Justin Young You've probably already gathered that the answer to how you're asking will almost always be "no", much the same way that if someone asked you for a similar report on your personal bank account you'd ignore them. That's a pretty revealing financial statement and, unless you're under contract for the property, don't expect that to ever be something you'll get unless you're very close to the owner. 

    [email protected]
    1Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y
    Originally posted by @Russell Brazil:

    Are you requesting this information through an agent or broker? They arnt going to provide this information to any joe schmoe off the street.

    I went through both just to try it out. To start off though, I was actually interested in the properties but just couldn't make sense of the financials on the pro-forma which is why I wanted to dive in deeper and figure out the numbers. But to no avail. Now I know better than to just ask.

    How did you, personally, know that you were ready to take that leap?

    0Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y
    Originally posted by @Michael Le:

    You're not going to find any business owners willing to give you important financial information just so you can practice underwriting. There are plenty of other ways for you to make sense of a T12. Look through this link for some learning. Understand this well before worrying about underwriting a real T12.

    http://abimultifamily.com/abinsight-the-art-of-mul...

    Thanks for the link. Just from briefly looking at it, this looks like a valuable tool to keep in my tool bag. I will be reading this later today.

    When did you feel confident enough to pull the trigger and pursue a deal?

    1Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y
    Originally posted by @Nathan Click:

    @Justin Young - Financial reports, such as the trailing 12 month report, are very important and should be evaluated by any borrower.  You'll also want copies of P&L statements and current balance sheets.  You may want to even go back two to three years, if you are seeking good stabilization with the property.  Although this information is critical to evaluate a deal, it only makes since to give it to parties who are potential buyers.  Most sellers will screen out possible buyers from "tire kickers."  This is a practice that not only saves time but protects sensitive information.  To get that kind of information from a seller you have to be a real buyer, meaning you have a real interest in the asset and the ability to acquire it.  Some sellers will have you get under contract first, others will ask for a soft commitment or proof of funds, and others will only work with you if you have a buyers agent.  All of these are indicators that you are worth their time. 

    Thanks Nathan for the advice and feedback. Is a buyer's agent required when working with multi-family or is that only due to me being a rookie investor?

    0Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y
    Originally posted by @Nick B.:
    Originally posted by @Justin Young:

    Aloha BP!

    I've been trying to ask owners of multi-family if they'd be willing to send me their trailing 12 to help educate myself but I haven't found any takers? Is this taboo to do or should I continue asking? To start off, I don't tell them that I plan to purchase the property because I don't have the courage to do so but in the mean time, I'd like the build that courage by being able to make sense of the T12 so when I feel the time is right, I can make a quicker decision based on what I've learned and the information being shown to me. Any advice from the BP community?

    Justin,

    Don't you ever tell them that you you're not going to purchase the property! Do not use the phrase or even a thought of what I emphasized in bold font quoting your text! (... I don't tell them that I plan to purchase the property because I don't have the courage to do so...)

    If you mention that you're only practicing you will never get a meaningful answer!

    Change your thinking and change your language! You are going to purchase a property but it has to fit into your box (you need to defined what your target deal is but don't tell that to the sellers). That's all they need to know. 

    Nick

    Another great piece of advice @Nick B. Yes, I need to work on the content of my message to the seller. In the near future, I'll be searching for a mentor to show me the ropes while I put in some sweat equity to gain traction and confidence to land my own deal. Thank you for this.

    1Reply
  • Nathan Click
    Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
    9y

    @Justin Young - Buyer's agents are never required but are usually a good idea especially for rookies.  It's even a good idea for pros because they bring outside perspective and they make sure that your interests are represented.  

    1Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    9y
    Originally posted by @Peter MacKercher:

    @Justin Young You've probably already gathered that the answer to how you're asking will almost always be "no", much the same way that if someone asked you for a similar report on your personal bank account you'd ignore them. That's a pretty revealing financial statement and, unless you're under contract for the property, don't expect that to ever be something you'll get unless you're very close to the owner. 

    You're right @Peter MacKercher, I probably wouldn't let somebody look at my financials if I didn't know them.

    How have you created relationships with owners prior to making deals with them?

    0Reply
  • Peter MacKercherBusiness Member
    Residential Real Estate Broker · Saint Louis, MO · Member since 2014 · 1k+ posts · 567 votes
    9y

    @Justin Young Prior to a deal it'd be about networking, especially in REIA meetings, or if you have similar interests and just happen to know each other. If I'm only going to talk/get to know an owner because I want to buy their property then I just tell them that I want to buy their property and the relationship goes from there -- transparency is king here.

    [email protected]
    0Reply
  • Reed Schlesinger
    Atlanta, GA · Member since 2016 · 36 posts · 17 votes
    9y

    I agree with @Peter MacKercher in regards to transparency on the buyers end. The problem is that sometimes sellers like to fudge the numbers on their Financial Statements leading to you being high and dry. I would make sure to be extra conservative when you are modeling out the purchase and see what you come up with. 

    0Reply
  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    As others said, most investors won't share their T12 to someone who isn't seriously considering purchasing. If it's just for practice, there are other ways to get the experience. Find another investor and see if they are willing to send you figures from one of their deals. Or talk to an agent and request financials on a listing.

    With that said, just seeing the numbers won't help you if you don't know what to look for. What you should be seeking is an understanding of the current operations and make projections on how you would run it. 

    2Reply
  • Judth Felker
    Real Estate Entrepeneur · Minneapolis, MN · Member since 2015 · 9 posts · 37 votes
    9y

    Assuming you don't know the seller, and in fact, live in  different state and are speaking on the phone,  the key is to establish a relationship before you make your offer. Whether you're talking directly to the seller, or through the seller's agent, focus first on the details of the property in your conversation. Get to know its strengths and weaknesses. Ask questions to get deeper into understanding and appreciating the property, the neighborhood, the good and the not-so-good aspects. Its in that conversation that you build the relationship between the two of you.  When you sense the time is right, ask why they want to sell. Listen carefully to their motivation to discern ways you can help them meet their needs/goals. It may be in the timing of the closing, or in helping them with any type of problem.

     Especially listen for clues that they may benefit from doing full or partial seller financing. They have to feel a connection with you and trust you enough to even consider this because they'll imagine the risks.  The first thing they need to know is just how you are going to secure their investment so they cannot lose it. Only when they are confident they'll get all of their money (or property) back through collateralizing their loan, through taking out insurance, through automatic payments, etc., do you talk about how they will actually make more money (the interest) through seller financing than through selling to a conventional buyer.  Hope this helps.

    0Reply
  • Paul LaSpina
    Specialist · Manhattan, NY · Member since 2014 · 85 posts · 12 votes
    8y

    @Marc C.   Great advice Marc.... Question: How do you get their bank statement info to compare with their bookkeeping file and tax return? And what exactly are you looking for when you are comparing them?

    0Reply
  • Michele G.
    Ann Arbor, MI · Member since 2017 · 109 posts · 52 votes
    8y

    @Paul LaSpina When comparing bank statements with financial reports you want to see that the money deposited into the account is in line with the income reported on the P&L. If the P&L is showing 100,000 in annual gross rents and you can only see deposits totaling 75,000 on the bank statements then you should be curious what happened to the other 25k. Are they reporting rents accurately, inflating them, or are they not accounting for delinquent rents? You can do the same for expenses. Similarily the outflows should align with the P&L. The tax return has a P&L in it. You can compare that with their books and bank statement. Keep in mind there may be some differences if they are on an accrual basis. 

    1Reply
  • Paul LaSpina
    Specialist · Manhattan, NY · Member since 2014 · 85 posts · 12 votes
    8y

    @Michele G.

    Thanks Michele !! that was helpful...How is investing business going for you?

    0Reply
  • Michele G.
    Ann Arbor, MI · Member since 2017 · 109 posts · 52 votes
    8y

    @Paul LaSpina I'm glad it was helpful. I am looking for deals right now trying to narrow down which direction I want to go in. I have out of state SFH long term rentals's right now, but I want to get into MFHs possibly small apartment complexes. My husband is interested in vacation rentals and BRRR's. lol

    0Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    8y

    @Justin Young

    Hi Justin

    Why don't you contact brokers and ask for operating memorandums?  I don't know anyone who would share their financials if they weren't going to sell the property.

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
    1Reply
  • Vincent Popovski
    Real Estate Agent · Troy, MI · Member since 2018 · 39 posts · 21 votes
    8y
    I know T12 is usually only provided once under contract, how do you figure out if a deal is decently good before going under contract? (Newbie investor 🙂)
    1Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    T12 is provided as a part of broker's listing.

    0Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
    8y

    Unless you are an experienced investor, you should walk away, if the seller can't provide you with enough data to assess the financial claims about the property. Remember, when buying MF, you are actually purchasing a business. How do you know the real value of the business, if you don't have the financial data?

    0Reply
  • Kyle Schubert
    Member since 2019 · 1 post · 1 vote
    7y

    If anyone new is reading this in 2019,

    To find the links associated with definitions from ABI, "the art of multifamily underwriting", ABI redid their website and the articles are located here: https://abimultifamily.com/?a=03&/abi-research

    1Reply
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