February 16, 2025
This past Friday, we got about two inches of snow here in Chicago, and just like that, the roads turned into a mess.
Some highways slowed down to a crawl—others just stopped completely.
My usual one-hour drive home turned into a two-hour test of patience.
Surprisingly, I didn’t see any accidents.
But the moment drivers felt their wheels slipping, they hesitated, and everything ground to a halt.
Chaos.
Meanwhile, I was cruising in my 4-wheel drive pickup, breezing past the mess.
That’s when it hit me – this whole situation is a perfect example of a value-add proforma.
A value-add proforma always has four key levers:
✅ Income
✅ Expenses
✅ Improvements (CAPEX)
✅ Time
These four levers need to align, just like a car’s traction system.
If one is off, the whole thing skids out of control.
A proforma is more than a spreadsheet.
It’s a blueprint that connects all four elements.
This helps make sure a deal works in real life, not just on paper.
Now, let’s dive into each one.
Why Most Proformas Don’t Work
I’ve tried quite a number software and templates for proforma modeling.
In the end, I found one key point: they only work if you buy the same, identical asset each time.
Value-add real estate is dynamic.
Every deal is unique.
Properties, locations, and market conditions vary.
So, you need to be flexible.
That’s why I believe:
❌ Forget hard-coded proformas.
✅ Learn basic Excel gymnastics, and you’ll be 10x better off.
And one more thing—you can’t outsource this 100%.
The final decision-maker on the numbers should be someone who has walked the property, shares the vision, and has real-world experience.
In other words, this is you. 🫵
Proformas aren’t just about plugging in data—it’s almost an art.
The 4 Levers That Make or Break a Value-Add Deal
Here’s a breakdown of the 4 levers.
1. Income
When I first analyze a property, I start with the in-place income—the revenue it’s generating today.
📌 Step 1: I create a “Current” tab in my Excel sheet and input:
- Existing rent roll
- Other income sources (parking, laundry, etc.)
- Tenant reimbursements (taxes, insurance, CAMs, utilities)
📌 Step 2: I copy and paste this data into a new “Projected” tab.
Then, I adjust rents based on what they’ll be after renovations and stabilization.
This gives me two critical topline revenue numbers: where the property is today vs. where it will be after the value-add improvements.
2. Expenses
Next, I focus on operating expenses (OPEX) and separating reality from seller Data
📌 Step 1: In the “Current” tab, I enter all expense data provided by the seller.
📌 Step 2: I go line by line and compare these numbers to similar properties we own.
Common red flags?
🚩 Underreported maintenance costs
🚩 Missing property management fees
🚩 Unrealistically low insurance or tax numbers
I update the expense numbers to what I think it should be.
📌 Step 3: In the “Projected” tab, I estimate what the building’s expenses will be once stabilized and fully operational.
At this point, I now have two critical NOI numbers:
- Current NOI (based on seller’s data, adjusted for reality)
- Future NOI (post-renovation, fully stabilized)
3. CAPEX
CAPEX is where most investors—including myself—tend to underestimate.
This step is easy to understand, but hard to do.
First, list all improvements.
Then, estimate the cost for each one.
🚧 Pro tip: Your initial numbers will be estimates, but they should be as close as possible. Eventually, you’ll back them up with actual bids.
To make sure I’m in the right ballpark, I use a cost matrix—a tool I’ll share in a future newsletter.
4. Time
Time is the biggest proforma killer—and it sneaks up on you fast.
Many investors underestimate how long it will take to complete a value-add project.
Here’s the harsh reality:
🚀 If you plan for 2 years but finish in 1, you turn a good deal into a goldmine.
⏳ If you plan for 2 years but take 4, a good deal turns into a bust.
In my proforma, I create a separate tab for each project year. Here, I map out:
- Yearly NOI growth projections
- Timing for filling vacancies
- Dates for rent bumps
Dressing It Up
Once these four levers are dialed in, the deal either works—or it doesn’t.
If it works, now comes the fun part:
📌 Calculating IRR, equity multiples, cash flow projections
📌 Structuring the investor payout model
📌 Deciding leverage levels
At this stage, I’m not massaging the numbers to make a bad deal look good.
I’m just slicing up the pie in a way that’s fair and win-win for everyone involved in the project.
Conclusion
✅ Before getting lost in the weeds, focus on these four levers first:
- Income
- Expenses
- CAPEX
- Time
✅ Time is the most overlooked lever in value-add.
It can be just as powerful—if not more—than income.
✅ A deal cannot be dressed up if these four main components are off.
Here’s my value-add proforma template (Google Sheet).
Use it, abuse it, and make moves.
That’s it for today.
Hope you got some value.
If you have a question you want me to answer, please hit reply!
(Yes, this is the real me; I read every email).
Be Well,