What Is a Pro Forma in Real Estate? A Plain Guide for Apartment Deals
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A pro forma is a projection of a property's future income, expenses, cash flow and sale price, built from stated assumptions. In an apartment syndication it is the yearly model behind the projected returns in the offering, and every number in it depends on assumptions you can check.
How is a pro forma different from a T12?
| Topic | T12 (trailing twelve months) | Pro forma |
|---|---|---|
| Time | Past 12 months | Future years |
| Source | Bank and property records | Assumptions |
| Used for | Checking the starting point | Projecting returns and the sale |
| Can be wrong because | Errors, one-time items | Optimistic assumptions |
A worked example (hypothetical)
A 40-unit building has a trailing NOI of $400,000. The pro forma shows $480,000 by year 3. Where does the $80,000 come from?
| Driver | Added NOI |
|---|---|
| Renovations: +$100 a month on 40 units | +$48,000 |
| Lower vacancy: from 8% to 5% | +$20,000 |
| New other income (utility billing) | +$12,000 |
| Total | +$80,000 |
Each line is a claim to test: are $100 premiums supported by rent comps? Is 5% vacancy realistic for the submarket and class? Do expenses stay flat, or does the model use expense growth?
What should you check in a pro forma?
- Starting point: does year 0 match the T12?
- Rent growth and renovation pace: are they supported?
- Expenses: property taxes reset after a sale, insurance and payroll.
- The loan: rate, interest-only period, refinance assumptions.
- The exit cap rate: is it higher than the going-in cap rate?
- A downside case: see sensitivity analysis and syndication financial projections.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), and verifies that every investor is accredited before they sign, in both. Investors fund by wire into the deal's escrow account at Enterprise Bank & Trust. Sponsors pay a $1,500 setup fee (non-refundable) and a flat $5,000 a year administration fee; see pricing.
FAQ
Is a pro forma a promise?
No. It is a projection built on assumptions, and actual results can be much lower.
What does "pro forma NOI" mean?
The NOI the model expects after the business plan, as opposed to the trailing (T12) NOI.
Should a lender use pro forma NOI?
Most lenders size loans on trailing NOI, with limited credit for planned changes.
Sources
This article is general information, not legal, tax or investment advice. Talk to your own CPA and attorney about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.