Updated about 2 months ago on . Most recent reply
Before you trust a seller's pro forma, do this first
Every deal I've ever seen, and I've seen hundreds, comes with a seller's pro forma that paints the best possible picture.
Optimistic rents. Minimal vacancy. Ignored maintenance reserves. No management fee.
The seller isn't lying. They're showing you the ceiling. Your job as the buyer is to find the floor.
Before I commit to any deal I run a three-scenario stress test:
Base Case: Current market rents, 8% vacancy, 35% expense ratio. Realistic.
Conservative: Rents 8% below market, 12% vacancy, 40% expense ratio. Market softens.
Downside: Rents 15% below asking, 20% vacancy, 45% expense ratio. Things go wrong.
If the deal cash flows in Scenario 2 it's worth pursuing. If it only works in Scenario 1 you're betting on everything going right. That's not investing, that's gambling.
Run the floor, not the ceiling. Every time.
Happy to walk through anyone's numbers in the comments! Cheers.