A proforma is the financial projection behind every deal: projected income, expenses, and returns before any of it has happened.
Here is the part almost nobody tells first-time investors. Most sponsors build two models. One they actually believe. One they put in your deck.
The one they believe is conservative, an internal model built to stress test whether the deal survives a bad year before they risk a dollar of their own capital on it.
The one in your deck is usually a little more optimistic. Better rent growth. Tighter exit cap rate. Smoother assumptions all the way down. Not necessarily dishonest. Just flattering.
Here is why that gap exists, and it has nothing to do with the property. It has to do with how much of the sponsor's own money is actually in the deal. If a sponsor is not putting real capital behind it, being optimistic on paper costs them nothing. Their downside is the hours they spent building the model. Yours is not.
That is why we run one proforma at Westlake Realty Group, not two. We put 10-20% of the equity into every deal we do. The case we underwrite for ourselves has to be the same case we hand you, because it is our own money sitting behind that number too.
Ask your sponsor this before you wire a dollar: how much of your own capital is in this deal, and is the model in front of me the same one you built for yourselves?
If the answer is a small check and two models, you already know which number to trust.
What is the one proforma assumption you always double check before you invest?
Wednesday Real Estate 101: What is a proforma, and why do most sponsors have two of them?
