What is a Financial Proforma?
Understand how professional investors analyze the returns on a property
A financial proforma (or Pro Forma) in the world of investing, refers to a method by which someone calculate financial projections of an asset using certain assumptions to assess the viability of the investment by looking at its projected returns (the proforma).
In Real Estate this is no different, and when analyzing a property as a potential investment, we need to look at how it'll perform after our initial investment, the generated income, and the expenses.
Professional investors usually run analysis in the proforma using a combination of:
- Financial formulas: These are proven methods that help us analyze and compare the returns on a property. Examples are: ROI, Cap Rate or Cash on Cash.
- Assumptions: Because a financial proforma is essentially forecasting how the property is going to do financially into the future, there are certain assumptions one needs to take, for example "How much insurance needs to be paid every year for the next 5 years", and many more like it.
- Professional Software or Advanced Excel Documents: This is where everything comes together for analysis. Usually you enter all the information into your system, and the professional software gives you the projections with the given assumptions.
Realdax provides financial proformas and investment recommendation analysis on every property, whether is listed or not. Learn how you can access 1-click proformas HERE.