T-12 (Trailing Twelve Months): A financial statement showing the last 12 consecutive months of a property's income and expenses. Lenders use it to calculate Net Operating Income (NOI) and determine how much they'll lend you.
What Is a T-12 Operating Statement?
If you're refinancing or selling a multifamily property, you will produce a T-12. There is no alternative. Every lender—Freddie Mac, Fannie Mae, regional banks, credit unions, private lenders—requires one.
The T-12 is not your tax return. It's not your P&L from QuickBooks. It's a specific format that shows month-by-month income and expenses for your property, ending with a Net Operating Income figure that the lender uses to underwrite your loan.
Why Do Lenders Require a T-12?
Lenders don't care about your property. They care about the cash flow your property generates. The T-12 is proof of that cash flow.
Here's the math that matters:
In plain English: the higher your provable NOI, the larger your loan. The lower your provable NOI, the smaller your loan. "Provable" is the key word. If you say you collected $500,000 in rent but your bank statements show $450,000 in deposits, you have a $50,000 problem.
The T-12 doesn't show what you earned. It shows what you can prove you earned.
What Does a T-12 Contain?
A standard T-12 has two sections: Income and Expenses. Each line item is shown for each of the trailing 12 months, with a total column.
Income Section
- Gross Potential Rent (GPR) — What you'd collect if every unit was occupied at market rent
- Vacancy Loss — Rent lost to empty units (see Physical vs. Economic Occupancy)
- Concessions — Free rent, move-in specials
- Bad Debt — Rent billed but never collected
- Other Income — Laundry, parking, pet fees, late fees
- Effective Gross Income (EGI) — GPR minus losses plus other income
Expense Section
- Property Taxes
- Insurance
- Utilities — Water, gas, electric (owner-paid)
- Repairs & Maintenance
- Management Fees — Usually 5-10% of EGI
- Payroll — On-site staff
- Professional Fees — Legal, accounting
- Administrative — Office supplies, software
- Landscaping
- Contract Services — Pest control, snow removal
Note: Debt service (mortgage payments) and capital expenditures are not included in NOI. This is deliberate. NOI measures the property's operating performance, independent of how it's financed.
How Is a T-12 Different from a Tax Return?
Your accountant optimizes your tax return to minimize taxes. This means depreciation, paper losses, and aggressive expense categorization.
Lenders don't care about your tax strategy. They want to see actual cash performance. This is why your T-12 and your Schedule E will never match—and that's expected.
| Tax Return | T-12 |
|---|---|
| Optimized to minimize taxes | Optimized to show true cash flow |
| Includes depreciation | No depreciation |
| May include personal expenses | Property expenses only |
| Calendar year | Trailing 12 months (rolling) |
| Filed annually | Prepared for each transaction |
What Is T-12 Variance and Why Does It Kill Deals?
The #1 reason T-12s get rejected: variance.
Variance is the gap between what your T-12 says you earned and what your bank statements prove you deposited. Lenders will reconcile your T-12 to your bank statements. If the numbers don't match, you have a problem.
Common variance causes: Cash payments not deposited, Section 8 payments hitting separate accounts, tenant credits applied but not documented, timing differences between billing and collection.
Acceptable variance: Less than 2-3% for most lenders.
Deal-killing variance: Anything above 5% will trigger additional scrutiny or outright rejection.
Visualizing the Red Flags: Good vs. Bad T-12
Lenders scan your T-12 for generic "buckets" that hide bad news. The more specific your line items, the more trust you build.
The Deal Killer
Lump sums that invite scrutiny.
Underwriter thought: "The $42k is probably deferred maintenance. The $12k is probably lawsuit defense. The $8k is fake. Reject."
The S-Tier T-12
Detailed items that prove competence.
Underwriter thought: "These are specific, manageable events. I can exclude the roof repair from NOI as non-recurring. Approve."
What Is "Phantom Income" in a T-12?
Phantom income is revenue that appears on your T-12 but doesn't appear in your bank account. Common causes:
- Tenants who pay cash and you didn't deposit it
- Section 8 payments routed to a different account
- Rent credits or concessions applied incorrectly
- Bounced checks counted as income
- Accrual accounting showing billed rent, not collected rent
Every dollar of phantom income reduces your credibility with the lender. Worse, it reduces your provable NOI—which reduces your loan amount.
How Do You Prepare a Lender-Ready T-12?
- Use actual bank deposits as your starting point — Not what you billed, not what tenants owed. What actually hit your account.
- Categorize every deposit — Rent, Section 8, laundry, late fees. Every dollar gets a label.
- Match expenses to invoices or statements — If you can't prove you paid it, don't include it.
- Reconcile monthly — Each month's T-12 income should tie to that month's bank deposits within 1-2%.
- Document anomalies — If December rent was low because of a vacancy, note it. Lenders accept explanations; they reject mysteries.
What If Your Books Are a Mess?
Many property owners—especially those who inherited portfolios or manage properties part-time—have books that don't meet lender standards. Common situations:
- Rent collected via Venmo or cash with no tracking
- Personal and property expenses mixed in one account
- No formal rent roll, just handwritten notes
- Multiple properties in one bank account
- Years of deferred record-keeping
These situations are fixable. The process is called forensic reconstruction: starting with bank statements and working backward to build a T-12 that ties out.
It's tedious work. But it's the difference between a funded deal and a rejected application.
Your property may be profitable. But if your T-12 doesn't prove it, you won't get the loan you deserve.