A reconstructed operating statement is often used by property investors as the basis for income capitalization. An owner’s operating statement traditionally only includes a list of the property’s existing income and existing expenses for accounting and tax purposes, whereas the reconstructed operating statement includes all items that can be included as income (even at future dates) for appraisal purposes.
For example, a reconstructed operating statement may include the future potential of monthly rent (income) from a tenant, whereas the owner’s operating statement does not account for this income opportunity. The reconstructed statement may also annualize the property’s taxes and add expense items such as reserves for repairs or general wear and tear.
The forecast and income opportunity is determined by looking at past rental performance of the property, and the history of other competitive properties in the area. The reconstructed statement can also be used to estimate net operating income for the future, and become a uniform model to compare with operating statements of other like investment properties.