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When would it be best to use T1,T3, or T6 numbers when evaluated a new investment? Aside from a property going through initial lease up, why would you choose any of these over a T12 (if available)? Thanks
Annualizing T1, T3, and/or T6 is best done when/if the reality at the property has changed over the last few months and you want to try to ascertain what a full year of that new reality might look like.
This is common during lease-up when the property has only recently, in the last few months, hit full occupancy. It is also common when concessions have burned off only in the last few months. Or in a market where conditions have dramatically changed recently and you want to assess the new normal.
In terms of T1 vs T3 vs T6. The fewer months you use to annualize, the more volatile the annualized value will be. T3 is probably the most common, as it’s more recent than T6 but it at least includes three months which help to smooth out lumpiness in certain line items.
Of course, the more history you have the better. So for a fully stabilized property in a consistent market, T12 always is better than an annualized T1, T3, or T6. And even more history than just a T12 is preferred. That’s why lenders like to see at least three years of operating history. The more history you have, the better a picture you have of the property.
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