T-12 vs proforma: what is the difference?

Two documents, two different jobs

The T-12 (also written T12, or TTM for trailing twelve months) is a backward-looking ledger: twelve monthly columns of income and expenses that actually hit the books. The proforma (also spelled pro forma) is a forward-looking model: what the property could earn at market rents, stabilized occupancy, and a target expense load. Search either phrase, "T12 vs pro forma" or "actuals vs proforma," and the question underneath is the same: which number should carry the price?

Here is the part most articles get wrong: the proforma is not the villain. Every competent buyer builds one, every lender stress-tests one, and a seller who has genuinely improved a property has a legitimate story to tell in one. A proforma is a plan, and plans are allowed to be ambitious. The failure mode is specific: an ambitious plan priced as if it were already history, with assumptions no document supports. The T-12 exists to keep the plan honest. Every proforma line should be an explainable distance from its actual, and the explanation should survive a request for evidence.

Legitimate adjustments vs aggressive ones

The line between a fair proforma and an aggressive one is not the size of the number; it is whether a document stands behind it. A useful test for any adjustment: could the seller hand over evidence today, or does the number depend on something that has not happened yet?

Legitimate: backed by paper that exists now

• Contractual rent steps. Escalations already signed into current leases. The evidence is the lease itself.
• A settled tax reassessment. The appeal is decided or the new assessment is issued, and the proforma uses the actual new figure, not a guess.
• Renovation lift on completed units. Units already renovated and leased at the higher rent prove the premium; projecting that documented premium across the remaining classic units, net of the renovation budget, turn costs, and downtime, is a plan with evidence behind it. It still belongs on the proforma side of the ledger, priced as execution, not as history.
• A written concession schedule burning off. If free-rent periods are documented and expiring, the face rents they mask are recoverable and provable.
• Removing a verified one-time expense. The $18,000 re-pipe in this property's March column is capital, not operations; taking it out of the run rate is normalization in the seller's favor, and it is correct.
• Adding a market management fee. On a self-managed building, a proforma that adds the cost a new owner will actually pay is being more honest than the actuals, not less. Note the direction: this adjustment lowers NOI. A proforma that only ever adjusts upward was built to a price, not to the truth.

One rule sits between the two lists: documented upside is still upside. Evidence-backed projections, like a proven renovation premium on the remaining units, deserve to be underwritten, but in a clearly labeled stabilized case, not silently folded into the NOI that carries the asking price. The legitimate column earns a place in the price; the plan earns a place in the plan.

Aggressive: priced before it is proven

• Market-rent bumps with no comps. "Units are $150 under market" requires rent comps from comparable properties, not an assertion. If the premium were free money, the current owner would already be collecting it.
• Expense ratios no real building hits. A proforma that drops operating costs to 45 percent of income when the actuals, driven by a real tax bill, run at 55 percent is not a plan; it is arithmetic working backward from a target price.
• Occupancy no comparable achieves. Underwriting 95 percent economic occupancy in a submarket running 89 needs an explanation better than "stabilized."
• Capitalizing one-time income. An insurance payout or a lease termination fee booked into the income a buyer is asked to pay 16 times over.
• Ignoring the post-sale tax reassessment. Some states reassess on transfer, and even in nondisclosure states such as Texas, assessments tend to move toward market value after a trade. A proforma that carries the current owner's tax bill into a new owner's future overstates NOI by the size of the coming increase.
• Other income growth with no mechanism. Fees, parking, and RUBS revenue that rise in the projection while the unit count and the amenity set stay the same.
• Double-counting the same upside. Marking every unit to market and then layering annual market-rent growth on top of the same units, or claiming a rent lift the current rent roll already reflects.
• Annualizing the best months. Presenting the strongest trailing three months times four as if it were the trailing twelve. The label says actuals; the arithmetic is a projection.
• Rent bumps with no turn budget. Full mark-to-market captured immediately, with zero dollars for unit turns and zero months of downtime while leases roll.
• A lower cap rate on the proforma NOI. Projected income priced at a rate the market reserves for proven income. Stacking an optimistic numerator on a compressed denominator is how a 46.7 percent gap becomes a 60 percent one.

If you are the seller, this cuts your way too

Owners are often told an aggressive proforma maximizes their exit. The record of most deal processes says otherwise: a price built on unsupported assumptions gets rebuilt by the buyer's lender and the buyer's own underwriting during diligence, and the rebuild arrives as a retrade weeks after you have taken the property off the market. A seller whose asking price is supported by verified actuals plus documented, evidence-backed adjustments keeps control of the negotiation, because there is nothing left for diligence to take away. Before you sign a listing agreement, ask the broker one question about every proforma line: what document supports this number today? The lines with good answers are your price. The lines without answers are the retrade, scheduled in advance.

Six questions do most of the work in that meeting:

1. What is my T-12 NOI, and what is it after normalization?
2. Which rent comps, with addresses and lease dates, support the market rents?
3. Is the quoted cap rate applied to the actuals or to the proforma, and what were the actual closed cap rates on the comps?
4. What tax bill did you assume after the sale triggers a reassessment, and what insurance quote is behind the insurance line?
5. How much of your price depends on work the buyer does after closing, and what did you budget for turns and downtime?
6. What will the buyer's lender underwrite this property at?

A good broker answers all six without flinching, and the answers become your marketing package. The number that survives a lender's underwriting is the one worth listing at.

How RTOM handles the gap

RTOM is built on one rule: the listing is computed from the T-12 actuals, and projections stay labeled as projections. When a seller uploads a trailing twelve, it is parsed line by line and run through 15 published anomaly detectors that catch proforma-style gaps hiding inside the actuals themselves: a trailing-three effective rent more than 10 percent above the prior nine months, total expenses under 30 percent of income, other income at 5 percent or more without an itemized breakdown, missing tax or insurance lines. Critical flags block the listing until the seller documents the cause, which is the same evidence standard this page applies to proforma adjustments: numbers earn their place with paper.