400. The Seller’s Numbers Are Lying to You

Key TakeawaysOMs are sales documents, not truth documents – headline cap rates and “stabilized pro forma” are usually built on optimistic, not proven, assumptions.Sanity-check income – don’t underwrite rents that no one at that property has ever paid, especially if the space has been sitting vacant for months.Rebuild expenses – recalc property taxes at your purchase price, and target a realistic 30–35% expense ratio instead of trusting the OM.Add the “missing three” every time – baseline 5–7% vacancy, market-rate property management, and capital reserves (e.g., per SF per year).Price the path to stabilization – include TI, leasing commissions, and downtime to reach the seller’s pro forma NOI; that upside isn’t free.Judge the deal on your version of the numbers – when Tyler rebuilt the OM, the deal went from a “7.25% cap, decent returns” to a 4.56% cap and negative returns.