Evaluate Future Investment Property Performance With a Proforma
The Proforma Income Statement is very useful for real estate investors that want to evaluate the future performance of an investment property.
Unlike most other analysis reports, a Proforma Income Statement virtually projects an investment property’s income and expenses (typically out ten years). This provides the investor with an idea of such things as future cash flow, tax benefit (or loss), and sales proceeds in the event of a future sale.
The Proforma does have a caveat that should be understood, however. A proforma is a “projection” that applies speculated numbers, and therefore should be used cautiously. It is recommended to include conservative rather then overly aggressive numbers, and investor’s are cautioned not to make buying or selling decisions on the results of a Proforma alone.
Moreover, given this speculative nature of a Proforma Income Statement, it is better to opt for a ten-year proforma rather then a fifteen or twenty-year income statement.
Okay, now bear in mind what you want to accomplish with the Proforma. You want to analyze the cash flow and other performance measures resulting from changes to such variables as income, operating expenses, and property value over a ten-year period. In other words, given the assumption that rents, expenses, and value are going to increase over future years, you want to see the outcome.
ProAPOD Real Estate Investment Software does create a Proforma Income Statement for this real estate investing purpose. You can see a sample at www.proapod.com. Just follow Reports.
