The Actual "pro forma"

This is the best term I have encountered in a long while. It has occurred to me that many agents have taken to marketing properties today with future income as if it is in place now. While this may be appropriate within reason there are two things to consider: the first is that a lender will not loan on rents not currently in place so the loan calculation must be done on current income only (meaning a lower loan amount than what could be obtained on the pro-forma rents) and second is that a buyer usually wants to know the current income as well as the projected income numbers.

I just made the mistake, once again, of telling a buyer that a property just came for sale at a 5.5 CAP since that is how it is being presented. Once I dove into the actual figures I realized that nearly every number had been tweaked to be better than actual to such a degree that the deal is actually about a 4.5 CAP today. This is a fairly big gap but not necessarily a bad deal on current figures except when your expectations have been falsely set at the better number. In other words, tell me what you are doing today and what you think you can do tomorrow and I will decide how much of tomorrow I want to pay for today.

This is for sure a pro-forma type market where buyers should expect upside but I think everyone wants to at least know the starting point beforehand. I always assume that anyone with the money to buy a building was smart enough to have earned that money first and smart enough to know the difference between pro-forma and actual. No one with enough money to buy a building is ever so easily fooled.