The Pro Forma - Why do you need to double check what you are given?

Have you ever read a really bad proforma? The ones where they show that Uncle Paul is doing the landscaping and Aunt Mary is managing the property so there is no expense budgeted for those because they get a unit for free. Or the ones where they forget to mention that half the rental income is from friends and family who intend to leave when they sell the place. Or that some of the renters aren’t actually paying rent but they included them to pad the numbers?

When you are looking at a Proforma, you need to keep in mind what your costs are going to be and what you anticipate your rents and occupancy levels will be after you upgrade or takeover the property. Anytime that you have a transition, there is going to be some change in renters. This may be because they are friends or family who are getting a discounted rate or just that people worry that a new owner is going to come in and raise all the rents. Either way, you need to budget for that when you are calculating your numbers.

You also need to keep in mind that you may be bringing in new management and that that new management will cost more than who they currently have on staff. You may be planning on upgrading the current grounds or exterior of the self-storage facility. If that is the case, you need to account for those costs as well.

A proforma is a nice introduction to a property, but you always want to make sure that you double check the numbers that they give you against what your actual costs are going to be. You also want to make sure that the rents are right for the area. If it is a mom and pop shop, they may not have raised rents in a long time. How are you going to gradually raise the rents to be more competitive with current rates? On the other hand, are they giving you inflated numbers to make the property look better than it actually is? Do your research on the area whenever you look at a proforma so that you know if what you are being told is accurate.

Whenever you look at a proforma, make sure that you understand what you are looking at. You are about to buy a self-storage facility and you want to make sure that the numbers will work with your investment model. As always, happy investing.