Proforma is one of the most essential tools in financial modeling used to evaluate the viability of real estate investments. It is used to measure the financial impact of a real estate investment and predict its future performance before making a final decision.
What is Real Estate Proforma?
Real estate proforma is a document that outlines the present and future potential financial performance of a real estate investment based on assumptions about market values, operating expenses, tenant demand and other factors. It also includes estimated cash flows and return on investment (ROI).
Key Components of a Proforma Template
A well-prepared real estate proforma template should include the following components:
- Revenue: This section will include the projected rental income for the property over the length of the investment. It should include an estimate of tenant turnover and tenant improvement costs.
- Operating Expenses: Operating expenses will include any estimates for taxes, insurance, utilities, maintenance and management fees.
- Debt Service: This section should include the estimated debt service payments for the period of the investment.
- Net Operating Income (NOI): The net operating income (NOI) is the amount of cash flow that remains after operating expenses are subtracted from rental income.
- Cash Flow: This section will include the estimated cash flow before debt service and taxes.
- Return on Investment (ROI): ROI is the measure of how much money was made on an investment over a given period of time.
Real estate proforma is an important tool for any real estate investor, whether they are a small investor or a large corporation. Understanding the key components of a proforma template and using it to estimate a property’s potential cash flows and ROI can help investors make better decisions about their investments.