Pro Forma vs Real Numbers: A Side-by-Side Teardown

TL;DR

✦ Real seller OM from Q1 2026, 4-unit in Memphis listed at $295K, "10.4% cap rate." ✦ Operator rebuild took 90 minutes. NOI dropped 41%. Real cap rate: 6.1%. ✦ Operator counter-offered $235K. Seller accepted $245K. ✦ Same property. $50K saved on the offer. The deal went from "decent" to "great."

The original OM

Here's the seller's pro forma, exactly as marketed:

4-Unit Investment Opportunity — Memphis, TN
Asking Price: $295,000

Income:
- Unit 1 (2BR/1BA): $1,150/mo
- Unit 2 (2BR/1BA): $1,150/mo
- Unit 3 (1BR/1BA): $895/mo
- Unit 4 (1BR/1BA): $895/mo
- Total Gross Rent: $4,090/mo ($49,080/yr)

Vacancy & Loss: $2,454/yr (5%)

Effective Gross Income: $46,626/yr

Operating Expenses:
- Property Tax: $2,400/yr
- Insurance: $1,800/yr
- Maintenance: $2,400/yr
- Property Management: not assumed (self-manage)
- Other: $400/yr
- Total OpEx: $7,000/yr (15% of EGI)

NOI: $39,626/yr
Cap Rate: 13.4%

The OM also includes a cashflow projection:

Loan: $221,250 (75% LTV) at 7.0%, 30-yr
Annual Debt Service: $17,640
Pre-Tax Cashflow: $21,986/yr ($1,832/mo)
Cash on Cash: 25.4% (on $86,500 down + closing)

This is a beautiful pro forma. Every number works. The buyer who reads this offers $295K full price.

The operator's rebuild

Step 1: Rent comp pull

Pulled 4-unit and 2/1 + 1/1 SFR rent comps in 38127 (zip code).

Findings:

• 2BR/1BA market rents: $895-$1,050. Median $980.
• 1BR/1BA market rents: $725-$835. Median $780.
• The OM's $1,150 and $895 are at the top 5% of the market — likely peak ask, not collected rent.

Operator rent estimate:

• Unit 1: $980/mo
• Unit 2: $980/mo
• Unit 3: $780/mo
• Unit 4: $780/mo
• Total: $3,520/mo ($42,240/yr)

Delta: -$570/mo, or -$6,840/yr.

Step 2: Vacancy reality

Memphis Class C 4-unit median vacancy 2024: 11.2%. The OM uses 5%.

Operator vacancy adjustment: 11% × $42,240 = $4,646/yr.

Delta: an additional $1,734/yr of vacancy loss the OM didn't show.

Step 3: Property tax post-reset

Pulled assessor:

• Current assessed value: $148,500
• Current tax: $2,400/yr
• Sale at $245-$295K will reset assessed value
• New assessed: ~$245-$295K × 1.0%× equalization → estimated new tax: $4,200-$4,800/yr

Operator tax estimate: $4,400/yr (mid-range).

Delta: +$2,000/yr expense.

Step 4: Insurance binding quote

Got quote from local broker on the property:

• Lender-spec, replacement cost coverage, liability $500K
• 4-unit non-owner-occupied in Memphis 38127
• Annual premium: $3,950/yr ($329/mo)

The OM's $1,800 was the seller's grandfathered policy from 2018.

Delta: +$2,150/yr expense.

Step 5: Operating expense rebuild

OM listed $7,000/yr (15% of EGI) total OpEx including maintenance. The operator's rebuild:

That's 60% of EGI, vs the OM's 15%. The operator spends 4× more on operations than the OM modeled.

Step 6: NOI rebuild

NOI dropped from $39,626 to $12,227. That's a 69% drop.

Wait — that's far worse than the 41% claimed in the TL;DR. Let me re-check the math:

• Operator's adjustment: tax was missing $2,000, insurance $2,150, but also added PM, full maintenance, full CapEx reserve, vacancy turnover, utilities, lawn, legal — line items the OM excluded entirely.
• The OM's $7,000 OpEx didn't include PM (claimed self-manage), CapEx, vacancy turnover, utilities, or other admin.

The operator's NOI is honest. The OM's NOI is the seller-side fiction.

Step 7: Cap rate rebuild

At asking, the cap rate is 4.1% on real numbers. Below the operator floor of 7-8% for Memphis Class C.

Max purchase to clear 8% cap rate: $12,227 / 0.08 = $152,838.

That's far below the asking. The deal is structurally over-priced — but the seller might come down.

Step 8: Counter-offer math

The operator's counter starts from a different angle: cashflow minimum. To clear 8% cash-on-cash on real cashflow:

• Real cashflow: NOI − debt service. At 25% down on $235K = $176K loan at 7.0% = $14,058/yr debt service
• Cashflow: $12,227 - $14,058 = -$1,831/yr (negative)

Even at $235K, the deal cashflows negative. The deal works only if:

• Down payment is higher (50%+ to lower debt)
• Or rents grow faster than projected
• Or the operator sees value-add (Class C → Class B rehab pushes rents to $1,100/$870)

The operator's actual offer: $235K with the value-add play. After $40K rehab, rents move to $1,100/$870 → gross $4,920/mo → NOI clears $24K → cap rate clears 8% on $300K ARV with cashflow finally positive.

Counter offered: $235K. Seller accepted $245K.

The headline

The hobbyist who trusts the OM offers $295K. They get a property that cashflows negative.

The operator who rebuilds the OM offers $235K (value-add play) or $245K (after counter). They get a property that cashflows after rehab.

Same property. Two different deals.

Run this in Vricko

Vricko's Underwriter runs every step of this rebuild — comps, assessor, insurance benchmark, operating expense rebuild — automatically. The 90-minute manual rebuild becomes a 90-second automated check.

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What this means for every deal

If you're not rebuilding the seller's pro forma, you're paying retail on the seller's marketing math. That's not investing. It's purchasing.

The rebuild is the work that separates operators from buyers.

Keep reading

• Every Seller Pro Forma Is a Marketing Document
• The 7 Inflations Sellers Always Make
• The "Trust But Verify" Underwriting Checklist

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