Pro-Forma

A pro-forma is the forward-looking financial projection for a property — its income, expenses, and resulting NOI and returns over the hold. It's the model a deal is underwritten on. "Pro forma" simply means "as projected," as opposed to actual, in-place results.

How it's used: every acquisition runs on one. The key distinction is whose pro-forma: the broker pro-forma in the offering memorandum is a sales document built on favorable assumptions, while your pro-forma is the underwrite you'd actually fund. The gap between them is the deal.

Why it matters: a pro-forma is only as honest as its assumptions — vacancy, rent growth, the expense load, reserves, and the exit cap. Small optimistic tweaks compound into a large valuation difference, which is why the broker number tends to land on a flattering pre-reserves cap rate and a stabilized NOI that assumes everything goes right. Rebuild it on your own assumptions before you trust the return.

There's no single formula — a pro-forma is the model: EGI → NOI → debt service → cash flow → exit. See broker pro-forma vs. true cap and the reserves teardown for where pro-formas overstate returns.