A real estate pro forma is a projection of a property's income, expenses, and cash flow over time. It's the spreadsheet that turns a hunch about a deal into numbers you can test — and the place where optimistic assumptions go to hide.
The core lines
- Gross potential income — what the property would earn fully leased at market rents.
- Vacancy and credit loss — a realistic haircut; nothing stays 100% leased.
- Operating expenses — taxes, insurance, management, maintenance, utilities.
- Net operating income (NOI) — income minus operating expenses; the heart of value.
- Debt service — loan payments.
- Cash flow — what's left for the owner after everything.
Where deals get oversold. Most rosy pro formas hide in three places: rents that assume a perfect market, expenses that are too low, and an exit assumption that bails the deal out. Stress-test those three and you'll catch most of the trouble.
Not advice. This is general educational and operational information — not legal, accounting, tax, or investment advice. George Howell Ward is not a CPA or registered investment adviser and provides no IRS Circular 230 services. For decisions, consult a licensed professional in your jurisdiction.
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