A pro forma is a financial statement that shows projected financial results based on certain assumptions or estimates. It is typically used to estimate future financial performance, such as projected revenue, expenses, and profits. Pro forma statements are often used in real estate to project the financial performance of a property, such as projected rental income, operating expenses, and net operating income.
Pro forma statements can be used for a variety of purposes, such as:
- Estimating the financial performance of a property before it is acquired
- Projecting the financial performance of a property after it is renovated or repositioned
- Estimating the financial performance of a proposed development or construction project
- Presenting financial projections to potential investors or lenders
Pro forma statements are not the same as historical financial statements, which show the actual financial performance of a property or company. Instead, pro forma statements are based on estimates and assumptions, and are therefore subject to change as actual results may differ from the projected results.
For real estate, pro forma is commonly used by investors, developers, and lenders to evaluate the financial viability of a project, and to make investment decisions. It’s important to use realistic assumptions and consider all relevant factors such as market conditions, operating costs, occupancy rates and financing terms.