Ashley and Tony’s Instagram DMs have been blowing up! This week’s question comes from Collette through Tony’s Instagram direct messages. Collette is asking: Do you make offers based on pro forma or actual rent numbers?

If you’re a real estate rookie or a residential-only investor, this may be the first time you’ve heard the term “pro forma” before. A real estate pro forma is simply a spreadsheet or document that projects the estimated financials on a property once capital expenditures, rent increases, or other improvements have been put in. So, should you trust those numbers?

Here are some suggestions:

Remember to “trust, but verify” and always run your own numbers on projected income

Use multiple different investor scenarios: pro forma, current numbers, worst case, etc.

Take into account the holding cost of performing a large rehab on a commercial property

Calculate your working capital and CapEx budget needed to acquire the property successfully

And more in the episode…

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).