Creating a Proforma Income Statement
A Proforma Income Statement is a projection—typically over a period of ten years—of an investment property’s income and expenses. It is used for real estate investing analysis because it gives the investor an idea of the property’s cash flow, and in some proformas, the investor’s tax benefit (or loss) and sales proceeds in the event of a future sale.
ProAPOD real estate investment software provides essentially two kinds of proforma income statements. Whereas Premium 10.0 includes depreciation, amortized loan points, mortgage interest, investor tax benefit, cash flow before and after tax, and sales proceeds after tax, Basic 6.0 does not include the elements of tax shelter, and provides only before tax cash flows.
Some would argue that a proforma should be a twenty-year income statement. The problem most see with this, however, is that since it is a projection, the numbers being estimated out over so many years would be too unreliable for concise analysis. For that reason, most opt for a ten-year proforma, as does ProAPOD real estate investment software.
Creating a Proforma Income Statement is not difficult, especially with a spreadsheet program like Excel, but it can be time consuming. Here is a typical layout for a proforma income statement:
Gross Scheduled Income (GSI)
Less: Vacancy
Equals: Effective Gross Income (EGI)
Plus: Other Income (i.e., laundry, etc)
Equals: Gross Operating Income (GOI)
Less: Operating Expenses
Equals: Net Operating Income (NOI)
Less: Debt Service
Equals: Cash Flow Before Tax (CFBT)
Less: Tax Liability or (Savings)
Equals: Cash Flow After Tax (CFAT)
In this case, all numbers are annualized.
ProAPOD Real Estate Investment Software provides a proforma similar to that above in both the Premium 10.0 and Investor 4.0 editions. Basic 6.0 does not include the tax liability or CFAT computations.
To see a sample (in PDF format) go to our real estate investment software reports page.
