Real estate

Ultimate Guide About Pro Forma Construction 2023

Written By Urban Real Estate Center
Last Updated: Dec 06, 2022 •

A well thought out plan is essential to success when embarking on a new construction project. A pro forma is an important part of that plan, and it allows you to anticipate potential risks and rewards associated with the project and identify growth opportunities. With a stellar pro forma, you can confidently move forward with the project knowing that you have a roadmap to guide you along the way.

Starting a new construction project can be a daunting experience, and there are so many unknowns and too many things to worry about. A reliable checklist can help contractors easily manage the project, allowing them to focus on what matters. This blog post will look at creating a stellar proforma for construction projects. Let's get started!


What is a pro forma, and what is its importance in new construction?

When it comes to new construction, pro forma is an essential tool. Simply put, a pro forma is a document that outlines the financial projections for a new development. This can include anything from the expected construction costs to the anticipated revenue from leasing or selling units.

For developers, pro forma is a key part of the planning process. It allows them to see how different factors will impact the bottom line and adjust their strategy accordingly. It also plays an important role in attracting equity investors.

By providing potential investors with a detailed pro forma, developers can show how their investment will generate a return. In short, the pro forma is one of the most important documents in new construction. Without it, developments would be much more risky and difficult to finance.


Success Points To Follow in New Construction with a Stellar Pro Forma

Starting a new construction project can be intimidating, but having a strong pro forma is the key to success. A pro forma is a document that outlines the financial aspects of a construction project, and it is essential to plan for all potential risks and rewards. Knowing what constitutes a stellar pro forma and how to maximize its value will set any new construction project up for success.

1. Stay Flexible At The Time of New Construction Project

When it comes to building a successful pro forma for a new construction project, flexibility is one critical ingredient that needs to be noticed.

Too often, developers get locked into a particular product type or lender and end up with financial statements that don't accurately reflect the reality of the project. By staying flexible and being willing to consider different options, you can avoid this pitfall and create a pro forma that is more accurate and realistic.

For example, if you're building a rental property, you'll need to be flexible regarding the unit mix and amenities you include. The same is true for construction costs; if you cannot stay within your budget, you may need to adjust your pro forma accordingly.

Ultimately, the key to success is to stay flexible and be willing to adapt as the project unfolds. Doing so will give you the best chance of creating a successful pro forma and new construction project.

2. Know the right timing

Timing is everything when it comes to successful real estate development. Whether planning a new construction project or acquiring an existing property, due diligence is key. By analyzing the market and understanding the community's needs, you can ensure that your capital investment will pay off.

Moreover, timing is also important when it comes to construction, and knowing when to start and stop work can minimize disruptions and maximize efficiency. By following these simple tips, you can increase your chances of success in the ever-changing world of real estate development.

3. Accurately Forecast and Budget for Construction Costs and Timelines

Accurately forecasting and budgeting for construction costs and timelines is a success point to follow in new construction with a stellar pro forma. There are a number of factors that need to be accurately estimated in order to have a successful development project.

These cost estimates include, but are not limited to, the following: land acquisition, land development, infrastructure improvements, vertical construction (foundation through punch list completion), professional fees (i.e., architect, engineers, general contractors, etc.), financing costs, sales & leasing costs and carrying costs during the lease-up period. This is by no means an exhaustive list, but accurately estimating each of these line items is critical to a successful multifamily project. 

One way to help control costs is by utilizing a design-build delivery method. Design-build delivery methods allow the architect and general contractor to work together from the outset of the project, typically leading to more cost-effective construction solutions being identified early in the process. 

Another way to help control costs and accurately forecast the budget is by utilizing a pre-construction manager during the feasibility/entitlements phase of the project. A good pre-construction manager will help to accurately forecast construction costs and timelines by performing due diligence on the site, researching comparable projects in the market place and soliciting bids from qualified subcontractors. 

Accurately forecasting and budgeting for construction costs and timelines is a successful point that should be considered when developing a new multifamily project. Utilizing design-build delivery methods and pre-construction managers are two ways that can help control costs and accurately forecast the budget.

4. Leverage Technology to Streamline the Pro Forma Process

A pro forma is an essential tool for any new construction project. It provides buyers with a clear understanding of the costs associated with the project, and it helps to mitigate risk by identifying potential problems early on. However, creating a pro forma can be a time-consuming and complicated process.

Fortunately, there are several ways to streamline the pro forma process using technology. For example, construction management software can track costs and understand where money is spent, and this information can then be used to create a more accurate pro format.

Buyers can save time and money by leveraging technology to streamline the pro forma process. In addition, they can be confident that they are getting the most accurate information possible when it comes to an understanding of the costs of their new construction home.

5. Avoiding Costly Mistakes by Fine-Tuning Your Pro Forma for New Construction

Avoiding costly mistakes when building your new home can be daunting, but with some guidance, you can succeed. One of the most important things to do is to fine-tune your pro forma. This document serves as a blueprint for your construction project and should be accurate to avoid any costly surprises down the road. 

Some key elements to include in your pro forma are the land purchase price, the cost of construction, expected holding costs, and your projected sales price. By ensuring that these numbers are accurate, you can avoid making mistakes that could end up costing you thousands of dollars. 

In addition to your pro forma, another helpful tool is a construction schedule. This document will outline the various phases of your project and help you keep track of progress. By following these two documents closely, you can avoid making costly mistakes and ensure that your new home is built exactly to your specifications.


Frequently Asked Questions

How will that impact our financial returns?

When it comes to making financial investments, one of the most important questions we must ask ourselves is 'how will that impact our financial returns?' The answer to this question can determine whether a venture is worth pursuing. It requires us to be mindful and analytical about what kind of returns we should expect from any particular investment opportunity. We must think beyond the current context and identify possible risks and rewards for future prospects.


When assessing potential financial returns, several key factors need to be considered. Firstly, we need to consider economic conditions such as inflation rate and market trends over time; these factors play an important role in determining the overall growth of our money. Secondly, we should also recognize the risk associated with each investment by understanding how much volatility it might involve.


What are the hard and soft costs associated with construction, design, financing, etc.?

Construction projects often include hard and soft costs associated with design, financing, and execution. Hard costs refer to the cost of labor, materials, tools, and equipment required to complete the construction project. 


Soft costs are totals associated with services such as permitting fees, legal fees, design fees, contractor overhead expenses, and bond premiums. These two categories of costs provide a comprehensive look into the overall cost structure of any project at hand. 


Hard costs are tangible investments that can be seen or heard from day one on-site; they are important because they allow contractors to budget accurately for their projects while avoiding costly surprises that could impact completion schedules. Examples include concrete work, steel frames, and wood beams used in building structures, nails, screws, and other hardware used during installation processes.


What does a slower absorption period look like financially?

A slower absorption period can look like a lot of things financially. For one, you might have more debt than usual, and this can be from credit cards, loans, or other sources. You may also find that your income is lower than it was in the past, making making ends meet difficult.


Additionally, your expenses may be higher than usual, which can put a strain on your budget. In general, a slower absorption period can be a tricky time financially. However, there are some things you can do to help ease the burden. For one, you can try to live within your means and cut back on unnecessary expenses.


You can try to boost your income by finding additional sources of income or looking for promotions at work. Finally, you can create a budget to help you track your spending and ensure you stay on track. While a slower absorption period can be challenging, there are ways to manage it so that you can still maintain financial stability.



So, you've decided to enter the construction market. Congratulations! A well-executed new construction project can be a lucrative endeavor. However, it's important to ensure your pro forma is in order before breaking ground. This document will be the foundation of your success, so it's essential to get it right.

Urban Real Estate Center

Learn how to create a winning pro forma for your new construction project and succeed with an accurate estimate of costs, timeline, and completion.