Before you fork over your hard-earned money on a piece of property, “bargain” or not, investing in a proforma will ensure you’re able to bring your vision to life and see a return on your investment. For a first-time commercial real estate investor, not having a proforma is the equivalent of getting a home mortgage without first receiving an appraisal and comparable selling prices for your property.
A proforma is a set of calculations that project the financial return a proposed real estate investment is likely to create. It is based on equity and debt financing, costs associated with planning, construction and operations, and revenue from projected rents the property will generate. Further, the proforma can help determine the type of building use, commercial, retail, multi-family, etc. that will generate the highest return on the investment; it validates your vision for the property with verifiable and reliable financial returns.