Pro formas - broken down, dissected and analyzed

As part of our three part series on Pro formas and everything you need to know, we to the nitty-gritty where Pro formas are Pro-formas broken down, dissected and analyzed to help our real estate investor friends.Pro formas - broken down, dissected and analyzed Pro Forma Section 1: Price and Financing

What most Pro formas spell out

  • Price
  • Interest rates

What your diligence should spell out

  • Price
  • Down payment
  • Loan origination fees
  • Closing costs
  • Total Cash invested

Pro Forma Section 2: Operating Income

What most Pro formas spell out

  • Income

What your diligence should spell out

  • Income
  • Vacancy loss
  • Total operating expense

Pro Forma Section 3: Operating Expenses

What most Pro-formas spell out

  • Taxes
  • Insurance

What your diligence should spell out

  • Taxes
  • Insurance
  • Management fees (if applicable)
  • Leasing fees (if applicable)
  • Association fees (if applicable)
  • Maintenance
  • Landscaping: Mowing, snow removal (if applicable)

Pro Forma Section 4: Net Operating Income

What most Pro formas spell out

  • Cash Flow

What your diligence should spell out

  • Cash flow
  • Tax savings
  • Principle reduction
  • First year appreciation

Pro Forma Section 5: Financial Indicators

What most Pro formas spell out

  • Cash flow
  • Appreciation

What your diligence should spell out

  • Cap rates
  • Cash on cash returns
  • Total return on investment
  • Total ROI without tax savings

The biggest clarity I hope you were able to get out of this 3 part post is that there are many variable to a Pro forma, they are a snapshot look into a property and should be compared to other snapshot reports to do quick side by side analysis when weeding through properties and those that represent the best deals. You should never purchase a property on just the Pro forma alone.

As I get so many questions around these topics I have created a calculator to help make this easier. When you narrow a property down to a couple of the best prospects, plug the information into the IDEAL Real Estate Investor calculator, which will spell out the more in depth details.

Most sales people caution going into this depth of analysis, as many people who would have once made a purchase of a property will no longer be interested when the true numbers come out. While it is true that many investor have too high  expectations, it is my belief that their expectations are too high because they have to build in such a large safety factor. If you have the tools necessary to make sound buying decision (like those we offer here), you can feel good about going forth and investing with purpose.