What is Pro Forma in Real Estate Investing?

Until we can time travel, pro formas are our best way to project financial results from an investment, and they help investors decide whether or not to invest based on how the property will perform.?

Pro forma is both a method of analysis and the resulting financial statement.?To create these, we take real-world information about a property such as current rental income, and combine this with projections about how the property will perform if we improve it.?

When we calculate pro forma these are some of the line items we consider:

·??????Projected gross rental income, which is the total income the property would earn if it was fully rented

·??????Vacancy rate

·??????Repair expenses

·??????Property management fees

·??????Cash on cash return -- the passive cash flow investors receive every quarter based on the amount they have invested

It’s crucial for investors to have a basic understanding of how to analyze a real estate proforma, so we spend time educating on how to interpret this information.?Nothing to be afraid of here, and there is no other way to invest with the utmost confidence.?