Multifamily Pro Forma: Line-by-Line Example
A multifamily pro forma is just a projection of a property’s income and expenses over a holding period, built line by line so you can see exactly where the return comes from and where it’s vulnerable. Brokers hand out pro formas constantly, and most of them are optimistic. The way you protect yourself is by knowing what belongs on each line, where the assumptions live, and how a small change in one line moves everything below it.
This walks through a full pro forma for a single year, top to bottom, using a realistic garden-style apartment deal. Every number below is derived from the ones above it, so you can follow the math and rebuild it with your own assumptions.
The Deal We’re Modeling
Assume a 50-unit garden-style apartment community, Class B, built in the 1990s, priced at $6,200,000. Average market rent across the unit mix is $1,350 per month. The buyer is financing with a $4,030,000 loan (65% loan-to-value) at 6.25% interest, amortized over 30 years.
Gross Potential Rent (GPR)
Gross Potential Rent is the rent you’d collect if every unit were leased at full market rent, every month, all year, with zero vacancy and zero collection loss. It’s a theoretical ceiling, not a forecast. You calculate it by taking market rent for each unit and annualizing it across the whole rent roll.
50 units × $1,350/month × 12 months = $810,000
Loss to Lease
Loss to Lease is the gap between what units could rent for at today’s market rate and what the units are actually leased at, because most tenants signed their lease months or years ago at a lower rate. It only applies to occupied units and it’s separate from vacancy. A property can be 100% occupied and still carry significant loss to lease if the in-place rents haven’t caught up to the market.
This deal has in-place rents running about 3% below market on average.
Loss to Lease: ($24,300)
Gross Rental Income: $785,700
Vacancy, Concessions, and Bad Debt
Three separate deductions get lumped together on a lot of broker pro formas as “vacancy,” but they’re different problems and you should model them separately:
- Vacancy loss is rent lost to physically empty units. For a stabilized Class B property in a normal market, 5% is a reasonable underwriting assumption, though the right number depends on submarket supply, seasonality, and the property’s actual trailing occupancy.
- Concessions are discounts given to get units leased: a free month, reduced deposit, or waived fees. Underwrite this based on what the property has actually been offering, not what the seller claims they’ll stop offering once you own it.
- Bad debt / credit loss is rent billed but never collected: tenants who skip, get evicted, or default. Pull the trailing 12 months of write-offs from the seller’s books rather than guessing.
Vacancy Loss (5% of GPR): ($40,500)
Concessions (1% of GPR): ($8,100)
Bad Debt (0.5% of GPR): ($4,050)
Net Rental Income: $733,050
Other Income
This is every dollar the property generates that isn’t unit rent. On a well-run multifamily asset, other income is a meaningful part of the return, not a rounding error, and it’s often the easiest lever to pull post-acquisition.
| Source | Annual Amount |
|---|---|
| RUBS (utility reimbursement) | $54,000 |
| Laundry | $6,000 |
| Pet rent / fees | $8,400 |
| Parking | $12,000 |
| Application / admin fees | $3,000 |
| Total Other Income | $83,400 |
RUBS (Ratio Utility Billing System) is doing the heavy lifting here. It’s a way of billing back water, sewer, and trash costs to tenants based on a formula rather than sub-metering every unit. If the current owner isn’t running RUBS and comparable properties in the submarket are, that’s a real, executable value-add, not a hopeful assumption. Just confirm your state and local jurisdiction actually permit RUBS billing before you underwrite it, because a few markets restrict or prohibit it.
Effective Gross Income (EGI)
EGI is Net Rental Income plus Other Income. It’s the actual, all-in revenue the property is expected to collect after every realistic deduction from the theoretical ceiling of GPR. This is the top-line number the rest of the pro forma builds from.
Net Rental Income ($733,050) + Other Income ($83,400) = $816,450
Operating Expenses, Line by Line
Operating expenses are the recurring costs of running the property. They do not include debt service, income taxes, or depreciation; those get handled separately below. They also generally exclude capital expenditures (roof replacement, major renovations), which get budgeted as a separate capital plan, not folded into the annual operating pro forma.
| Expense | Annual Amount | Per Unit |
|---|---|---|
| Property taxes | $95,000 | $1,900 |
| Insurance | $32,000 | $640 |
| Repairs & maintenance | $65,000 | $1,300 |
| Payroll (onsite manager + maintenance) | $110,000 | $2,200 |
| Utilities (owner-paid common area + master-metered water/sewer, net of RUBS) | $48,000 | $960 |
| Marketing / advertising | $12,000 | $240 |
| General & administrative | $18,000 | $360 |
| Management fee (3% of EGI) | $24,500 | $490 |
| Replacement reserves | $15,000 | $300 |
| Total Operating Expenses | $419,500 | $8,390 |
A few notes on the lines that trip people up:
- Property taxes should be reassessed at the new sale price, not carried over from the seller’s trailing tax bill. Most counties reassess on transfer, and the effective tax rate is a purely local number. Confirm it with the county appraiser or assessor’s office rather than trusting the offering memorandum.
- Insurance has risen sharply in recent years, and coastal or catastrophe-exposed markets run well above the number used here. Get an actual quote before you close, not a trailing premium from a soft-market year.
- Replacement reserves fund future capital items (roofs, parking lots, major mechanical replacements), spread out as an annual accrual. $300/unit/year is a reasonable planning figure for a property of this age and class; lenders on permanent debt will usually require a minimum reserve deposit as a loan condition.
- Reserves get treated inconsistently across pro formas. Some operators show them above the line as an operating expense (as done here); others show them as a separate deduction after NOI so that NOI matches the appraisal and lending definition, which typically excludes reserves. Check where a broker has placed the reserve line before you compare their NOI to anyone else’s. It changes the NOI figure by the reserve amount and can make a deal look stronger than it is.
Net Operating Income (NOI)
NOI is EGI minus total operating expenses. It’s the single most important number in the pro forma because it’s what the property is actually valued on: cap rates get applied to NOI, not to EGI and not to cash flow. Every appraiser, lender, and buyer’s underwriting model is built around this line.
EGI ($816,450) − Total OpEx ($419,500) = $396,950
At the $6,200,000 purchase price, that’s a going-in cap rate of roughly 6.4%.
Debt Service and Cash Flow Before Tax
NOI belongs to the property regardless of how it’s financed. To get to what the equity actually receives, subtract the loan payment.
On the $4,030,000 loan at 6.25%, amortized over 30 years, annual principal and interest runs approximately $297,750. Two ratios worth checking here:
- Debt Service Coverage Ratio (DSCR) = NOI ÷ Debt Service = $396,950 ÷ $297,750 = 1.33x. Most permanent lenders on stabilized multifamily want to see a minimum around 1.20x–1.25x, so this deal clears that with some room.
- Cash-on-cash return = CFBT ÷ equity invested = $99,200 ÷ $2,170,000 = 4.6%.
NOI ($396,950) − Annual Debt Service ($297,750) = Cash Flow Before Tax (CFBT): $99,200
Depreciation and Taxable Income
This is where a lot of pro formas stop, and it’s also where they mislead people, because CFBT isn’t what the investor actually keeps. Cash flow and taxable income are two different calculations that share some inputs but aren’t interchangeable.
Depreciation is a non-cash deduction. Land doesn’t depreciate, only the building and improvements do, so the first step is allocating the purchase price between the two. An 80% building / 20% land split is a common simplifying assumption for a mid-2000s garden multifamily asset, but it’s a placeholder. Your real allocation should come from the county’s assessed land-to-improvement ratio or a cost segregation study, since that split materially changes your depreciation deduction.
Building basis: 80% × $6,200,000 = $4,960,000
Under federal tax rules, residential rental property depreciates straight-line over 27.5 years (commercial property uses a longer 39-year schedule).
Annual depreciation: $4,960,000 ÷ 27.5 = $180,364
Taxable income also deducts mortgage interest, but only the interest portion of the debt service payment. The principal paydown is not deductible, because it’s a return of borrowed capital, not an expense. In year one on this loan, roughly $250,559 of the $297,750 annual payment is interest, with the remainder reducing principal.
| Line | Amount |
|---|---|
| Net Operating Income | $396,950 |
| Less: Depreciation | ($180,364) |
| Less: Interest expense (Year 1) | ($250,559) |
| Taxable Income / (Loss) | ($33,973) |
Depreciation shelters real cash flow. This property produces $99,200 of actual cash flow before tax, but on paper it shows a taxable loss of roughly $34,000 in year one. That’s the leverage-plus-depreciation effect that draws investors to multifamily in the first place, and it’s a genuine, legal feature of owning real property, not an aggressive tax position.
Whether that loss can offset other income depends on the passive activity loss rules. Someone who qualifies as a real estate professional under the material participation standards can generally use it against other income in the current year. An investor who doesn’t qualify may only be able to use a limited amount against non-passive income, depending on their income level, with any unused loss carried forward until the property produces taxable income or is sold. This is genuinely fact-specific, so talk to a CPA about your own situation before you count on the deduction.
Cash Flow After Tax (CFAT)
Since the property produced a taxable loss rather than taxable income this year, there’s no federal tax due on the property’s operations, so CFAT equals CFBT for this holding period.
Cash Flow After Tax: $99,200
In a later year, as principal paydown shifts more of the payment away from deductible interest and the depreciation deduction stays flat, the property will eventually show taxable income even while cash flow keeps rising. That’s normal, and it’s exactly why you model this out year by year over the full hold, not just year one.
The Full Pro Forma, Top to Bottom
| Line | Amount |
|---|---|
| Gross Potential Rent | $810,000 |
| Loss to Lease | ($24,300) |
| Gross Rental Income | $785,700 |
| Vacancy Loss | ($40,500) |
| Concessions | ($8,100) |
| Bad Debt | ($4,050) |
| Net Rental Income | $733,050 |
| Other Income | $83,400 |
| Effective Gross Income | $816,450 |
| Total Operating Expenses | ($419,500) |
| Net Operating Income | $396,950 |
| Annual Debt Service | ($297,750) |
| Cash Flow Before Tax | $99,200 |
| Tax Due (taxable loss, no tax owed) | $0 |
| Cash Flow After Tax | $99,200 |
Where This Breaks Down in Real Deals
The math above is mechanical once you have the inputs. The inputs are where deals actually go wrong. A few places to slow down before you trust any pro forma someone hands you, including this one:
- Trailing versus pro forma expenses. Compare the seller’s actual trailing 12-month expenses, line by line, against whatever number is on the OM. If insurance, taxes, or payroll are meaningfully lower on the pro forma than the trailing actuals, ask why. “We’ll self-manage more efficiently” is an assumption, not a fact.
- RUBS and other income growth. New income sources look great on a spreadsheet and take longer to actually implement than anyone plans for. Lease-up of new fees and billback programs happens unit by unit as leases renew, not all at once on day one of ownership.
- Interest rate risk on the refinance or sale. This example assumes a fixed rate for the full year. If you’re underwriting a floating-rate bridge loan or modeling a future refinance, run the numbers at rates meaningfully higher than today’s, not just the current quote.
- Reserve adequacy. A property that’s deferred maintenance for years needs a bigger reserve and a real capital plan, not just the standard per-unit number bolted onto the operating pro forma.
If you want to see how gross potential rent, vacancy, and NOI move as you change individual assumptions, our free CRE calculators let you run those numbers directly rather than rebuilding the spreadsheet from scratch.
This example used simplified, round assumptions to make the mechanics easy to follow. A real acquisition needs a full unit-by-unit rent roll, a multi-year cash flow projection, sale and refinance scenarios, and a depreciation schedule that runs the full hold period rather than just year one. The multifamily pro forma template in our Model Library builds all of that out in Excel, pre-formatted with the same line items covered here, so you can drop in your own rent roll and expense figures and get a full underwriting model in minutes instead of building the formulas from scratch.