What a trailing twelve actually tells you

A trailing twelve is twelve months of actual operating results. It is the most useful document a seller can give you and the easiest one to misread, because it describes a building under one particular owner and you are not that owner.

Management is almost always understated

An owner who self-manages reports no management expense, because none was paid. That does not mean the building runs without management; it means the owner worked for free. We restate management to a market percentage of effective gross income on every file, including the ones where the seller intends to stay on. The restatement usually moves the net operating income by more than any other single line.

Repairs and capital are mixed together

A roof is not a repair. On most seller statements it lands in repairs and maintenance anyway, which makes one year look terrible and the next three look implausibly clean. Pull the capital items out, look at what is left as a per-unit figure, and compare that to the age of the building rather than to the seller's average.

The year you are shown is rarely the average year

Twelve months is short enough that one long vacancy or one insurance renewal distorts it. Ask for thirty-six. If thirty-six is not available, underwrite vacancy to something the submarket supports rather than to what the building happened to do.

Taxes reset on sale

In Oregon the assessed value does not simply become the purchase price, but a sale is still the most common reason a tax line moves. Underwriting next year's taxes at last year's number is the quietest way to overpay.

None of this is an argument against the trailing twelve. It is the only record of what the building really cost to run. It is an argument for restating it in the open, on the page, with the restatements labelled — which is what our assumption sets are.