People love to show me the pro formas on the investment property they are trying to sell. And I look at them…with a wary eye.
What is a pro forma? It’s a set of numbers that project what a property should be getting/spending versus what it is getting/spending. It adjusts income and expense numbers to reflect true market rates. Or does it?
To me pro forma probably means “I’m lying to you.”
Now, I hate to sound cynical. However, if an income property should be getting $850/mo in rents per side why is it only getting $725/mo per side in rents? Also, how can you say expenses will only be “Y” when it is an eighteen year old property with the original heating, air, roof and water heater. Don’t you believe there will be capital expenses to account for next year?
I know you can turn investment properties around. There is a lot of money to be made in doing so. But choosing the right property is a daunting task and it should not be based solely on what the seller’s pro forma is showing you. You need to research, fact check and look at the numbers with a cold, rational approach. Take off the rose colored glasses before you get yourself into trouble.