Actual vs Pro Forma Financials · Commercial Real Estate 101

Actual vs Pro Forma Financials

Most broker Pro-forma* is too ideal! It anticipates near 0% vacancy, high rents, no repair costs, little cap-ex, perfect management, etc. ONLY buy based upon present numbers!!! *Compare Pro-forma side-by-side with the T12, Rent Roll, P & L, etc.

To evaluate and get estimated purchase values from Pro-forma only information do this process:

Avg rent X Units X 12 = Gross Rent. Gross Rent X 0.90 [10% vacancy] = Effective Gross Rent (EGR)

EGR X 0.55 (45% Expense ratio) = NOI. [If under-performing use higher vacancy and expense ratios.]

NOI ÷ Market Cap Rate range** = Market value range [use upper and lower figures, higher cap rate range => more conservative property values]

Market value range [same as ARV] X 0.7 - repair estimate = Maximum Acceptable Offer (MAO) - wholesale fee.

**Use lower and higher cap rate range to get MAO range, point out property deficiencies [high vacancies, high expense ratio, low rents, and needed repairs] to seller, and negotiate toward lower MAO while maintaining cash-on-cash target.

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