A proforma is the projected income and expense statement for a property: what the next owner is being asked to believe. Every line is an assumption wearing a number. The discipline is separating lines the building has already proven from lines that are hopes, and repricing the hopes. A proforma is not dishonest by nature; it is simply always someone's argument.
- It is an argument, not a record. Every line is an assumption wearing a number.
- Separate what the building has proven from what someone hopes. Proven lines have a T-12 behind them.
- Blind to the cost of getting there. Market rents on unturned units need renovation dollars and vacancy first.
- The useful question is not whether it is right, but who wrote it and what that author needs believed.
The same eight units: the seller's page against the building's own numbers.
Nothing in the proforma was a lie. It described a building nobody has run yet, and asked to be paid as though someone had.
Related terms
All termsNOI (Net Operating Income)
Net operating income is what a property earns from operations in a year: all collected income minus operating expenses, before any mortgage payment, income tax, or capital projects.
InvestmentCap Rate (Capitalization Rate)
The capitalization rate is a building's net operating income divided by its price, expressed as a percentage.
FinanceCash Flow
Cash flow is what actually lands in the owner's pocket in a period: net operating income minus the mortgage payment and minus the capital dollars the building consumed.
Terms arrive with the writing.
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