Overreliance on Listing Data and Pro Formas

Listing data can be misleading through omission, selective presentation, and outright error. Square footage may be measured to include non-livable space (unfinished basements, garages). "Recently renovated" may mean cosmetic paint over structural problems. Rent figures may reflect asking rents rather than actual collected rents. Days-on-market statistics can be reset by delisting and relisting a property.

Photos are particularly unreliable. Wide-angle lenses make rooms appear larger than they are. Professional staging and editing can make a distressed property look appealing. Some listings use photos taken years ago when the property was in better condition. Always request current, unedited photos and plan an in-person visit before making any investment decision.

Broker-prepared pro formas typically inflate income and minimize expenses. Common tactics include: using market-rate rents for all units when some are below market and subject to lease terms, assuming zero vacancy when the actual trailing vacancy rate is 5-10%, excluding property management fees (even when third-party management will be necessary), using unrealistically low maintenance and capital reserve estimates, and omitting turnover costs entirely.

The gap between a broker pro forma and reality can be substantial. A property advertised with a 7% cap rate on pro forma may actually operate at a 4.5-5% cap rate when real expenses are factored in. This gap is not fraud — it is standard marketing practice. The responsibility falls on the buyer to verify every line item independently.

Protect yourself with a systematic verification process. For income: request the trailing 12-month rent roll showing actual collected rents, not just scheduled rents. For expenses: obtain actual utility bills, insurance declarations, property tax statements, and maintenance records. For condition: hire independent inspectors and estimate capital expenditure needs based on the age and condition of major systems (roof, HVAC, plumbing, electrical).

Develop a habit of creating your own pro forma for every property you seriously consider. Start with actual collected income (from T12), subtract your own vacancy estimate (based on market data), and apply your own expense assumptions. Compare your NOI to the broker's NOI — the difference is the "credibility gap" that your due diligence has revealed.