T-12 Expense Normalization Guide

The big two: taxes and insurance

• Property taxes: the sale usually triggers reassessment at your purchase price. Call the assessor, learn the ratio and millage, and use the post-sale number — this alone can be a six-figure swing in value.
• Insurance: get an actual quote for your ownership. Premiums have repriced hard in coastal and storm-prone markets; the seller's legacy policy is not your future cost.

What mom-and-pop T-12s leave out

• Management: owner ran it themselves for 'free.' Add 4–6% of revenue plus on-site payroll at market wages.
• Repairs and maintenance: deferred isn't saved, it's borrowed. Use a realistic per-SF reserve.
• Marketing: $0 marketing with full occupancy means under-market rents or a market you should verify.
• Software, merchant fees, call answering — the modern operating stack the seller never adopted.

What to back OUT of the seller's numbers

• One-time items: legal settlements, a roof replacement, storm repairs.
• Personal expenses run through the property: vehicles, travel, family payroll.
• Depreciation, interest, and owner draws — below-the-line items that don't belong in NOI.

Build the normalized stack

Line by line, take the higher of (a) the seller's actual or (b) your market-based estimate — except where the actual contains their problems, not yours. The result is usually an expense ratio in the mid-30s to mid-40s percent of revenue for a stabilized facility, varying with size, climate control, and payroll model. If your rebuilt ratio lands far outside that band, find out why before you trust it.