What does "pro forma" refer to in real estate investment?

"Pro forma" refers to a financial document that projects future income and expenses for a real estate investment. It is essential for investors as it provides a forecast of the potential profitability of a project or property. By using assumptions about rental income, operating expenses, vacancy rates, and financing costs, a pro forma helps investors evaluate the viability of the investment before making a commitment.

This projection aids in decision-making processes by allowing investors to assess risks and compare different investment opportunities. Generally, a well-prepared pro forma will include detailed assumptions and potential scenarios, making it a vital tool in real estate investment analysis and planning.