Thinking of buying in the United States? Get one of our real estate pro-forma (we have more than 700).
Let's dive in and see how a real estate pro-forma can help you make smart investment decisions!
A simple explanation to understand the real estate pro-forma
A real estate pro-forma is a detailed financial forecast for a property. It helps you figure out if buying and renting out a house will make you money.
Imagine you want to buy a house to rent out. The pro-forma estimates your rental income (say $2,000 a month).
Then, it lists all your costs: mortgage, property taxes, insurance, maintenance (totaling, for example, $1,800 a month). Subtract costs from income to get your profit ($200 a month in this case).
It also prepares for unexpected expenses like repairs or vacancies and looks at long-term gains from property value increases and rent hikes.
How does a real estate pro-forma look like?
Actually, a solid real estate pro-forma will include multiple sections, as you can see in our free example.
Each section will give specific information about the property investment. With all the sections together, you will get a complete overview.
Here are all the sections we have included in our real estate pro-forma.
| Section | Description / How to use it in our spreadsheets |
|---|---|
| Inputs | You can enter all your starting details and assumptions here. This section also provides guidance and suggested values based on your city, helping you to accurately initiate your property investment analysis. |
| Answers | A detailed summary of your financial results based on the inputs you've provided. Everything is explained in plain English, making it easy for beginners to understand the financial implications of their investment decisions. |
| Dashboards | A complete view of your financial projections with all the key metrics and charts in one place. This consolidated view ensures you have all the necessary information at your fingertips, leaving nothing out. |
| Cash Flow | A detailed breakdown of your cash flow, showing all the money coming in and going out. This section provides a financial statement that banks or investors will request, helping you to demonstrate the viability of your investment. |
| Yearly | Pick a specific year to see a summary of how your investment is performing in that year. This includes a plethora of metrics and charts to give you a clear picture of annual performance. |
| Mortgage | All the important details about your mortgage, including your payments and interest rates. This ensures that you can anticipate your financial obligations and avoid any unpleasant surprises. |
| Scenario | Tweak different parameters to see how changes might impact your investment. The results update automatically, allowing you to evaluate different scenarios and make informed decisions. |
| 5-year | Look at how your investment is projected to perform over 5 years. You get to pick the starting date, which helps in planning and assessing mid-term goals and outcomes. |
| 10-year | See the long-term projection of your investment over 10 years. This section helps in understanding the long-term viability and potential growth of your investment, with the flexibility to choose the starting date. |
Where can I get a good pro-forma for my real estate investment?
There are several alternatives, actually.
We admit we're biased, but we believe WhatsMyCashFlow is the best option for real estate pro forma. Here's why.
First, our service is tailored to your city. Unlike free templates that ignore local factors, WhatsMyCashFlow uses data relevant to your area. This means our pro forma is accurate and useful for your market, giving you an advantage when planning your investments.
Next, using WhatsMyCashFlow is a breeze. Free templates often have clunky interfaces and limited features. Our spreadsheets are intuitive and easy to use, so you can quickly find what you need and make the most of the tools available.
WhatsMyCashFlow is also flexible. You can customize your pro forma to fit your specific needs and scenarios. Unlike rigid templates from financial experts, we offer free tweaks to suit your requirements.
We provide 24/7 customer support. If you have any issues or questions, our team is always available to help. Free templates don't offer support, and other services might not be available all the time. With us, you get round-the-clock assistance to keep you moving forward.
Our spreadsheets include all the key metrics, charts, and ratios needed for detailed real estate pro forma. Everything you need is at your fingertips, unlike basic tools that only offer standard metrics.
Finally, let's talk about cost. WhatsMyCashFlow costs less than $99. Financial experts can charge over $1,500, and investment firms might cost $5,000 or more per project. Even regular financial tools with monthly fees can add up quickly. We provide top-tier features and support at a fraction of the price, making it a great value for your investment.
The structure and sections of one of our financial spreadsheets tailored to 700+ cities.
What metrics should be part of a real estate pro-forma?
Below is a detailed table that outlines key metrics you should include in your real estate pro-forma, along with their calculations and interpretations.
| Metric | Interpretation | Explanation and Calculation |
|---|---|---|
| Gross Potential Rent (GPR) | Indicates maximum revenue potential. | The total rental income a property can generate if fully leased at market rates. Calculate by multiplying the market rent per unit by the number of units. |
| Vacancy Rate | High vacancy rates can signal issues with property attractiveness or market conditions. | The percentage of units expected to be vacant. Calculate by dividing the number of vacant units by the total number of units. |
| Effective Gross Income (EGI) | Reflects the actual rental income after accounting for vacancies. | Gross Potential Rent minus Vacancy Loss. |
| Other Income | Contributes to total revenue beyond rental income. | Additional income sources such as laundry, parking, and storage fees. Sum all other income streams. |
| Total Gross Income (TGI) | Represents total expected income from the property. | Effective Gross Income plus Other Income. |
| Operating Expenses | Essential for understanding the cost structure of the property. | Costs necessary to operate the property, including maintenance, management, insurance, and utilities. Sum all operating expenses. |
| Net Operating Income (NOI) | Measures the profitability of the property before financing and taxes. | Total Gross Income minus Operating Expenses. |
| Capital Expenditures (CapEx) | Essential for maintaining or increasing property value. | Funds used to acquire, upgrade, or maintain physical assets such as buildings and equipment. Estimate based on historical data and future needs. |
| Cash Flow Before Debt Service | Indicates available cash flow for debt repayment and investor returns. | Net Operating Income minus Capital Expenditures. |
| Debt Service | Necessary for understanding the impact of financing on cash flow. | Annual loan payments, including both principal and interest. Sum all scheduled loan payments. |
| Cash Flow After Debt Service | Shows the remaining cash flow available for distribution or reinvestment. | Cash Flow Before Debt Service minus Debt Service. |
| Loan-to-Value Ratio (LTV) | Indicates the level of leverage and risk in the financing structure. | The ratio of a loan to the appraised value of the property. Calculate by dividing the loan amount by the property value. |
| Debt Coverage Ratio (DCR) | Shows the property's ability to cover debt obligations. | The ratio of Net Operating Income to Debt Service. Calculate by dividing NOI by annual debt service. |
| Return on Investment (ROI) | Measures the efficiency of an investment. | Calculate by dividing the annual return by the total investment cost and multiplying by 100 to get a percentage. |
| Internal Rate of Return (IRR) | Provides the expected annualized rate of return of an investment. | The discount rate that makes the net present value (NPV) of all cash flows from the investment equal to zero. |
| Capitalization Rate (Cap Rate) | Helps evaluate the potential return on an investment property. | Calculate by dividing Net Operating Income by the current market value or purchase price of the property. |
| Gross Rent Multiplier (GRM) | Offers a quick comparison between similar properties. | Calculate by dividing the property price by the Gross Potential Rent. |
| Operating Expense Ratio (OER) | Indicates the proportion of income used for operating expenses. | Calculate by dividing Operating Expenses by Effective Gross Income. |
| Break-Even Ratio (BER) | Determines the occupancy rate needed to cover expenses. | Calculate by dividing (Operating Expenses + Debt Service) by Gross Potential Rent. |
| Cash-on-Cash Return | Measures the annual return on the actual cash invested. | Calculate by dividing the annual cash flow before tax by the total cash invested in the property. |
How to use our real estate pro-forma
To help you better understand the workflow, you can download our free sample and navigate through each section.
Entering Your Assumptions
Begin by entering all your starting details and assumptions in the "Inputs" section. This is where you provide the essential data that will drive your financial projections. You'll find guidance and suggested values based on your city to help you get accurate inputs.
Reviewing Your Results
After entering your inputs, proceed to the "Answers" section. Here, you will find a detailed summary of your financial results based on the information you provided. Everything is explained in straightforward language, making it accessible even if you're new to this.
Exploring the Dashboards
Next, explore the "Dashboards" section. This area provides a comprehensive view of your financial projections, showcasing all the key metrics and charts in one place. It's a complete snapshot of your investment's performance.
Switching Between Different Views
Now, delve into various views to gain a deeper understanding of your investment:
-
Cash Flow:
This view offers a detailed breakdown of your cash flow, displaying all the money coming in and going out. It's the type of financial statement your bank or investor will likely request.
-
Yearly:
Select a specific year to see a summary of your investment's performance during that period, complete with various metrics and charts.
-
Mortgage:
Access important details about your mortgage, including payments and interest rates, to avoid any unexpected surprises.
-
5-year:
Examine how your investment is projected to perform over the next five years. You can choose the starting date, providing a tailored view.
-
10-year:
View long-term projections of your investment over ten years. You also get to select the starting date, aiding in future planning.
Conducting Sensitivity Analysis
For an even deeper dive, use the "Scenario" section to adjust different parameters and observe how changes might impact your investment. The results update automatically, allowing you to experiment with different scenarios and find the best strategy for your property investment.
This approach ensures you have all the tools and information needed to make informed decisions about buying and renting out residential property in the city. Dive in, explore each section, and see how your investment can grow!