ProAPOD®

Real Estate Investment Software Blog

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.

Successful real estate investing requires that operating decisions be made on a timely basis. Some involve day-to-day operations while others involve long-run strategies based upon the investor’s portfolio considerations.

I am generally opposed to the “get-rich-quick” methods of real estate investment because they often assume self-management while ignoring your opportunity cost of time and the risks of high leverage. Besides, logic suggests, that when you uncover a goldmine you do not publish a map.

With any income property investment, two cash flows must be understood by the real estate investor and anyone else working with real estate investing: Cash Flow Before Tax, and Cash Flow After Tax.

Net operating income (or NOI) is a measure of an income property’s net income from all sources before allocations for debt service or tax (payments or savings) are calculated, and in turn, the NOI plays a large role in a variety of real estate investment and holding period decisions.

A good analysis of investment property gives the real estate investor (or property management firm operating on behalf of the investor) a basis for setting rents and estimating income and expenses.