How To Read a Pro Forma (IRR, EM, CoC)
A practical guide to understanding key return metrics and underwriting assumptions.
Key Metrics
IRR (Internal Rate of Return) measures the annualized return of all cash flows. Equity Multiple (EM) is total distributions divided by invested equity. Cash‑on‑Cash (CoC) is annual cash distribution relative to invested capital.
Assumptions That Matter
Focus on rent growth, exit cap rate, expense growth, vacancy, and capex schedules. Small changes in these inputs can materially shift returns.
Sensitivity and Downside
Review sensitivity tables for exit caps and NOI variance. Seek conservative leverage and adequate reserves to cushion adverse scenarios.