A property owner's estimate of annual capital needs, or their perception of the amount they need to save over time to properly reserve for future capital improvements, might be reflected in the reserves added while producing proformas. A sinking fund could be compared to this. Reserves may also be needed by the lender and must be paid regularly along with the mortgage. These Reserves, required by your lending institution, might be either general or designated for future funding needs. Where exactly on the proforma should these Reserves be shown is a question that must be resolved by analysts and financial modelers. Should your model display them above or below NOI? What are the consequences of these various strategies?

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Where to Show Reserves in a Pro Forma Above or Below NOI The placement of reserves in a pro forma is a subject of debate with both valid arguments for including them above or below Net Operating Incom... View the full answer