A trailing twelve-month financial review examines the actual operating income and expenses of a property over the prior year. The T-12 is the most reliable indicator of how a property has actually performed, as opposed to how a seller's pro forma projects it will perform, and it is essential diligence before committing 1031 exchange proceeds that must close within the 180-day window.
We audit the T-12 against bank statements, utility invoices, tax returns, and property management reports to verify that reported income is real and expenses are not understated. Line items such as insurance, property taxes, repairs, and management fees are benchmarked against market norms for the asset type and Austin-area geography, since Texas property tax rates in particular can materially affect net operating income relative to other states.
Pro forma projections sell properties; trailing financials reveal the truth. A thorough T-12 review ensures your acquisition price reflects actual operating performance rather than a seller's optimistic forecast.
Asset focus
Challenges
- Pro forma projections sell properties, but they routinely overstate income and understate expenses relative to what the trailing financials show.
- Sellers occasionally exclude one-time expenses or capital repairs from the T-12, masking the property's true operating cost structure.
- Management fees, insurance, and property tax line items vary significantly by geography and asset type, making benchmarking essential.
- A misread T-12 can lead to an acquisition price that does not reflect actual net operating income, eroding returns from day one.
What we deliver
- An audited T-12 cross-referenced against bank statements, utility invoices, and property management reports.
- A line-item expense benchmark against market norms for the asset type and Austin submarket.
- A written summary distinguishing verified income from projected or pro forma figures.
- Coordination notes for your lender's underwriting file if the property is being financed.
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FAQ
What is a T-12 and why does it matter more than a pro forma?
A T-12 is a trailing twelve-month statement of actual operating income and expenses. Unlike a seller's pro forma, it reflects how the property has actually performed, not how it might perform under optimistic assumptions.
What documents do you check the T-12 against?
Bank statements, utility invoices, tax returns, and property management reports, to verify reported income is real and that expenses have not been understated.
What expense line items get the closest scrutiny?
Insurance, property taxes, repairs and maintenance, and management fees, since these are benchmarked against market norms for the asset type and Austin-area geography where they vary the most.
Does Texas property tax affect the T-12 differently than other states?
Yes. Texas property tax rates are notably higher than the national average, so an accurate T-12 review is especially important for correctly projecting net operating income on a Texas acquisition.
How does this review fit into my exchange timeline?
It should happen during your identification and early diligence period, before you are locked into a closing timeline with no room to renegotiate based on what the trailing financials reveal.
What if the T-12 does not support the asking price?
We flag the gap so you can renegotiate, walk away, or adjust your offer, before you have committed exchange proceeds that must close within your 180-day window.