Understanding Embedded Profit Spreads: A Deeper Look at the T12 Financial Statement for Multifamily Real Estate

Utilities, Cable / Internet, Credit Builder, LeaseLock, etc.

These items will have a corresponding income and expense item.

What's awesome about looking at financial statements is that you see the effectiveness of implementing 'other income' items.

For instance, you can easily go to the expense category and look at how much the items are costing every month. Then you can scroll up to the other income category and see how much money these items are bringing in each month.

This is an excellent decision making tool because you get to know which items create a profit spread. If there is no profit spread, or the other income item is actually losing money, it creates a value add opportunity through improving operational efficiency.

You can either raise the price of the other income item, delete the service altogether, etc.

Little changes to how the deal is run make a huge difference when dividing NOI by the market cap rate to establish value.

Even a $10,000 improvement to the NOI will be a $200,000 difference when dividing by a 5 cap rate. It can be like free money just by knowing how to read the story embedded in the financial statements.