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Proforma Income Statement
The proforma income statement (proforma) is essentially a table that provides real estate investors a way to evaluate the future performance of an investment property. Giving the investor an idea of such things as future income, operating expenses, cash flow, tax benefit (or loss), and sales proceeds in the event of a future sale.
Though a proforma income statement is not limited to any number of years, most proformas typically used are either ten-year or twenty-year projections. Because the proforma is a projection however, and extremely speculative, it's probably best to keep the proforma with projections for no more than ten years.
A proforma, though helpful for evaluating a rental property's future performance, should be used cautiously, however. It is a projection with speculated numbers. It is always best to include more conservative numbers rather than overly aggressive numbers. And the investor should never make a buying or selling decision on the results of a proforma income statement alone.
Since the proforma income statement is a table, anyone with a spreadsheet program should be able to create one. Though it can be time consuming and would rely on some understanding of the spreadsheet program to make the required calculations.
An alternative would be to use real estate investment software. Although they might vary slightly or omit some features like tax shelter, sales proceeds after tax, or specific rates of return, you can generally find a proforma income statement included in most real estate investment software solutions.
ProAPOD® real estate investment software does provide a ten-year proforma income statement that includes numerous calculations for income, taxable income, sales proceeds, sale measures, and rates of return. The proforma is created automatically as property data is entered into the forms, recalculated instantly if data is changed in the forms, and printable.
To see a sample of a proforma income statement go to www.proapod.com and follow Software Reports in the navigation menu.
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