Posted by Brent_IL on August 31, 2003 at 16:59:24:
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Pro Forma - Posted by Danny Teodorescu
Posted by Danny Teodorescu on August 30, 2003 at 20:21:37:
What is the difference between “current operating data” and “pro forma operating data”? this is in regards to what a broker has sent me about a particular piece of investment property…Thanks in advance!!! You guys are awesome!
Re: Pro Forma - Posted by Brent_IL
Posted by Brent_IL on August 30, 2003 at 21:49:26:
Pro forma is an estimate of projected data.
Re: Pro Forma - Posted by Brent_IL
Posted by Brent_IL on August 31, 2003 at 13:58:40:
Sorry about the double-speak, Danny. When I operate on an hour, or so, of sleep, my statements tend to get garbled.
When projects are new, or when they are underutilized and new management is expected to make a difference, projections are made. Based on the projections, we make best estimates. Some things like the mortgage payments or property maintenance are going to vary little with changing assumptions. The variable costs change depending upon the projections or assumptions we?re making. An apartment complex at 70% vacancy will consume less resources than if it were 100% filled.
?Current operating data? is based on experience, e.g., last month?s bills, heating costs the previous winter, et. al.
?Pro forma operating data? is based on guestimates. When you look at pro forma statements, two areas of concern are missing expense categories and over-optimistic income projections that may be coupled with under-estimated expenses. Vacancy is a category that is routinely underestimated. If the broker?s estimates are accurate and realistic, the projections will be met. If the broker is being generous to put the property in a good light so it sells, your experience will fall short of the projections.