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DownloadDo you need to compare real estate investment opportunities? Use our Residential Proforma spreadsheet to quickly identify if a real estate investment opportunity will be profitable. The proforma shows a ten-year financial outlook, adjusted for inflation, and lets users experiment with different scenarios.
The Proforma calculates the cumulative wealth that a property is projected to gain (or lose) over a ten year period, based on the data a user inputs in the Decision sheet. It also shows the present value of those profits for each year, adjusted for inflation and rent increases.
The value with the thick border is the estimated cumulative profit after the first ten years of ownership. The proforma shows the ten-year view so investors can see exactly when a property will profit and their investment will break even.
Users can make adjustments to inputs to see how rent increases or additional fees will impact profits. For example, if a property currently generates a loss, users can adjust rental prices and renter fees, or adjust the total property price, to see what will generate a profit.
The spreadsheet calculates total expenses and revenues based on the inputs. It shows the Net Operating Income (NOI), the Gross Rent Multiplier (GRM), and the capitalization rate, which is all information that buyers need to make informed comparisons between property values.
The GRM is one of the best ways to see a property's value in relation to similar properties in an area. A high GRM implies that a property will take longer to turn a profit. Investors look for a lower GRM because it indicates that there is a shorter time for the investment to earn a profit.
The Internal Rate of Return (IRR) tells investors the expected annual return on an investment. A high IRR is good, but it is important to compare the IRR with the initial investment to ensure that it is higher than the initial amount put in. Other metrics include Cash-on-cash yield, Liquid-on-cash yield (both per year), wealth gains per year, and a projected sale price.
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Liquid and non-liquid gains were split instead of included collectively since liquid assets can be pulled out at any given time, as opposed to non-liquid assets that are tied into the property until sale. This tells you how much revenue you'll receive without the need to rely on non-liquid assets. Projected sales price provides the full number. If the cash flow, cash yield, or IRR are negative, they will show up as red.
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At the bottom of the proforma, the cash reserves section calculates how much money an investor needs in the bank per year given the loan amount, down payment, and expenses. The "total" is calculated from the net gains, or the sum of all liquid gains and losses per year, for the property. The "total in present value" takes that number divided by inflation. This calculation is helpful to strategize how much is needed in the bank in order to avoid foreclosure from unexpected costs. If the numbers are red, be sure to consult with an accountant to ensure the funds are readily available.
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Charts display key investment metrics and automatically update based on property and loan details. Users can quickly look at rent revenue by unit and yearly wealth gains, total revenue and expenses, and cumulative profits. One graph shows the cumulative profit alongside the present value so users can visualize the current value of the property in ten years.
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There are charts for loan amortization, like the amount of principal vs interest by year, and the starting balance of the loan vs. the total interest paid. The point where the balance and interest meet is when you see real equity.
The Amortization sheet displays a monthly loan schedule according to the loan amount, term in years, and interest rate. The loan details can be easily adjusted in the Decision sheet to see how changes to the terms will impact monthly payments and the duration of the repayment. Users can also see how an extra monthly payment will impact the schedule. For example, if a buyer chooses to pay an additional $500 per month on the loan, they may see that the loan will be repaid an entire year sooner.
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The chart uses the inputs from the "Residential Loan" section of the Decision sheet for a detailed amortization. No changes should be made to the Amortization sheet itself – the sheet will automatically update according to the inputs.
First, input the property details on the Decision and Residential Proforma sheets wherever there is blue text. The black text should not be changed – it will be automatically calculated based on the blue inputs. Each input in the decision sheet has a validation checkbox so that users can verify each data point as they go along.
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Users will need to specify whether the property tax is static or not. In some states, such as California, the property tax is the same—or static—from year to year. In other states, such as Florida, the property tax is variable from year to year according to the current property value. Click the checkbox if the property tax model is static. If left unchecked, the proforma will adjust the property tax for each year according to the market value and inflation rate. For convenience, both tax models are viewable in the proforma, but the selected tax model will be the one used in the calculations.
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Expenses will need to be tailored to each property for an accurate proforma. Expenses are organized by categories such as tenant-related costs, building expenses, and insurance. Expenses are easily removed or added as needed. Users can rename the expenses if there are different expenses to track, mark any rows with a zero dollar amount, or delete rows from the middle of the section. Avoid deleting the first or last rows in the list to keep the formulas intact.
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The total number of rental units at a property can also be adjusted. If there are fewer than four units at a property, users can mark rows with a zero dollar amount or delete rows from the middle of the list of units. Once again, make sure not to delete the first or last rows in the list. In this way, a proforma for either a multi-family rental property or single-unit property can be generated.
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A proforma is the best tool to compare properties and know for sure if a property is a good investment, as it helps you understand all the important elements involved in a purchase. It enables detailed scenario plans so you can make informed investment decisions and find your NOI, IRR, and wealth gains per year on any residential property. Download the Residential Proforma to think more strategically than other investors and get a greater return in the long run.
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