Rant: That 'net operating income' number on the pro forma is never what it ends up being

I was looking at a deal in Raleigh last week, a 12-unit building... the seller had the NOI at $85k. But then I started digging into the actual tax records and the water bills from the last 18 months... turns out they were estimating vacancy at 3% and expenses were way under what they should be for that area. Actual NOI was more like $62k once you factor in real property management costs and the deferred maintenance on the roofs. Has anyone else found a big gap between pro forma and audited numbers on smaller multifamily?

2 comments

2 Comments

oscarmurphy1d ago

Felt this one hard. I was looking at a 8-unit in Charlotte last month and the pro forma had NOI at $72k, but when I pulled the actual water bills and saw the landscaping contract they were using, the real number was closer to $48k. They were using something like 3% for repairs and maintenance and that's just not realistic for wood frame buildings from the 80s. I've started asking for 24 months of bank statements instead of just their spreadsheet because people straight up lie about vacancy and expenses. The worst was when I found out they had the owner doing all the management for free and didn't account for that labor at all. Now I just assume the pro forma NOI is going to be at least 15% lower once I verify everything myself.

quinnmitchell1d ago

Isn't that just how everything is these days? Numbers never match reality.