How to Underwrite an Apartment Deal with Incomplete Financials

A frequently asked apartment syndication question is “how do I underwrite an apartment deal when the seller doesn’t effectively track financials?” 

The two important items needed from a seller to underwrite a deal is a rent roll and a T-12. The rent roll provides information on the current rental income. The T-12 provides information about the historical income and expenses.

The typical underwriting process at a high level is as follows: Armed with the rent roll and T-12, the apartment syndicator populates a cash flow calculator with the current rents, T-12 income and expenses, and their assumptions for how they will operating the asset after acquisition. Once debt terms and other acquisition terms (i.e., general partner fees, renovations costs, limited partner compensation, etc.) are added, the apartment operation can determine an offer price based on the cash flow. 

Therefore, without the financials, it is very difficult to calculate a fair offer price.

Does this mean you should only underwrite deals that come with a detailed rent roll and a T-12? 

Of course not. Often, these can be some of the best deals. You will also have minimal to no competition. 

Before you can benefit from these types of deals, you need to understand how to successful underwrite deals without financials, which is the purpose of this blog post.

Types of Deals With Missing Financials

Most on-market deals listed by a broker will have a rent roll and a T-12. A broker usually won’t bring a deal to market without obtaining clear financials from the seller. The broker knows that it is difficult to sell a deal with missing or incomplete financial for the aforementioned reasons.

Therefore, deals with missing or incomplete financials are generated through off-market lead generation strategies. More specifically, financials are lacking on off-market deals owned by mom-and-pop owners who self-manage.

This does not mean that the all deals with missing or uncomplete financials are off-market, mom-and-pop, self-managed apartments. Nor does it mean that financials are only lacking on these types of deals. It is always important to request a rent roll and T-12 on all deals, on-market or off-market.

If you request the rent roll and the T-12 and either one or both are missing, the process that follows is how to best underwrite the deal, which was inspired by an interview we did with Chris Roberts of Sterling Rhino Capital.

What is the Secret Short Cut?

The first thing to realize is that there is not a shortcut to underwriting a deal without financials. Essentially, the overall underwriting and due diligence process is the same. The major difference is that you will need to create the missing or uncomplete financials from scratch.

However, creating the financials from scratch is time intensive and must include the efforts of the seller. Therefore, this creation process usually will not start until the deal is under contract.

Submitting an Offer

The actual offer price is less important when the financials are missing or incomplete. For example, the final sales price on Chris Robert’s deal was approximately 20% below the original contract price after negotiations were completed. Therefore, determine what the price at which the owner wants to sell. Assuming this is at least in the ballpark of recent sales comparable, do not worry about an intensive back and forth negotiation.

The most important part of the offer are the terms. The earnest deposit needs to be 100% refundable or deposited after the financials are created. The official due diligence process, which starts with an inspection, shouldn’t begin until after the T-12 and rent roll are created. There need to be adequate contingencies in place, like an inspection contingency and a financing contingency.

When you create the proper offer terms, worst case scenario is the loss of time without the loss of money.

Work with the Seller Directly

Once the deal is under contract, the next step is to create the financials. This is best accomplished by working with the seller directly. Therefore, if a broker is involved in the deal., the first step after placing the deal under contract is to bypass the broker to work directly with the seller. 

Even if they broker is against you working directly with the seller at first, it is likely that the deal will reach a stand still where the only way forward is directly connecting you with the seller or canceling the contract. 

This is what happened on Chris Robert’s deal. He attempted to work through the broker to get the seller to create the financials to no avail. Eventually, because the deal was stalling, the broker caved and let Chris speak directly with the seller. 

When speaking with the seller, Chris discovered the point of contention. The seller was under the impression that is was Chris’s responsibility to create the financials by himself, which is impossible. He told Chris, “why am I doing your work for you?” 

Chris replied, “Look, we are in this together. You are not going to sell your apartment unless you have financials, because neither I nor anyone else is going to be confident in investing a deal without historical numbers. I am willing to work with you to create these financials so that we can both get what we want.”

By showing the seller that it was in his best interest, Chris was able to convince the seller to take the required steps to create the financials.

How to Create the Financials from Scratch

Working directly with the seller, the next step is to create the rent roll and T-12 from scratch. 

The first step is having the seller connect with their CPA. The CPA can use the seller’s bank statements and tax returns to generate the profit and loss statement. Additionally, on Chris’s deal, he sent the seller a T-12 template and asked the seller to update the template each month.

To build a rent roll from scratch, your property management team will need a copy of each lease. Your management team should be local to the market, which means they can travel to the property to create the rent roll. 

Re-negotiating the Price

Once you have the rent roll and T-12, you can officially underwrite the deal and renegotiate the price accordingly. 

At this point, you can follow the standard due diligence process. Whenever you come across a step where a financial document is unavailable, you and the seller will need to work together to create it from scratch.


The total time between receiving the lead and closing will depend on the cooperation of the seller and the level of missing documentation. For Chris’s deal, it took nine months. In general, I wouldn’t expect to close in the traditional 60 to 90-day time frame.

The main different between a traditional deal and a deal with incomplete financials is the time required to work with the seller to create the financials from scratch. It may be a lengthy process but it is a great way to acquire a deal below market, especially in a competitive market.


Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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Joe Fairless