So you’ve made it past the HR screening interview. You have the education and experience the company is looking for, but now they want to be sure you possess the real estate financial modeling skills necessary to do the job. They’ve asked you to take part in a multi-hour real estate technical interview. In that interview, they’ll test your Excel skills, your understanding of real estate principals, and your analytical acumen. So how do you prepare? What can you expect? And what determines success? In this post, I first go through what to expect from the technical interview and then offer some advice and resources to help you prepare.
If you’re reading this, you’ll probably also find value in my ‘Watch Me Complete an Actual Technical Interview Test‘ post. The video is over an hour long, but in it you can watch me model a real private equity case study. Download the attached Excel file and follow along as you watch.
Common Questions Without Readily Available Answers
I receive questions regularly from AdventuresinCRE readers about how to prepare for and ace the technical real estate interview. When I was studying for the GMAT and preparing my business school applications (sidenote: I eventually chose a masters in real estate over an MBA), I had access to a seemingly endless sea of information and advice online. There are countless websites, forums, blogs, articles, and consultants available at the click of a mouse to help potential MBAs prepare. Unfortunately, when it comes to preparing for any number of the career steps a commercial real estate professional must take, including the technical interview, online help is sparse. So this is my attempt to add something to the online record that will help professionals like you at this point in your career.
Where to Start – A Plan
Before I even begin enumerating the steps that go into preparing for and conquering the real estate technical interview, my first piece of advice is this: create a plan. Not groundbreaking advice, but probably the most important advice you’ll read here. Tariq Saddique’s oft quoted precept on the subject is applicable here, “If you are failing to plan, you are planning to fail.” Know that, you’re likely competing against candidates who’re smarter than you, went to a better school than you, and/or have more experience than you. The only way you’re going to stand out above the rest, is to better execute on your plan – but you need a plan first!
Your plan is the what and the how. How are you going to prepare? What resources will you study? What schedule will you follow? What test-taking strategy will you use, and how will you learn that strategy? The plan should be simple, specific, realistic and complete (to borrow advice from business planning expert Tim Berry).
Planning is a process. Your plan will evolve as you understand more about what it takes to do well in your interview. So don’t just sit down, grind out a quick plan, and then set it aside. Create a plan, think of it as your roadmap, and revise it as you get more information.
Disclaimer: This post contains affiliate links, which means we receive a commission if you make a purchase using the links labeled (paid) within this post.
What to Expect
No two real estate technical interviews are the same, but all employers generally have the same objective: to be sure you have the technical skills to do the job. Most technical interviews will have a few aspects in common. They’ll be several hours long (3+), held at the hiring company’s office, and consist of several components:
- The Case Study or Skills Test
- A Presentation of Your Conclusions
- One-on-One Interview(s)
The Case Study
The case study (or skills test) component of the interview tests your ability to value real estate using Excel (and possibly ARGUS). The company will provide you a computer with the necessary software, give you a time limit (typically 1 – 2 hours), and ask you to create a deliverable and/or answer certain questions within the allotted time.
Sometimes the company will give you a template to work from, but other times you may have to build something from scratch. Most likely you will be tested on your Excel skills, but they may also test your skills with other software. Be sure to ask in advance what skills you will be tested on, and what software you will be using.
The content of the actual case study will vary depending on the type of company you’re interviewing for and type of property the company invests in. The case may involve an apartment complex, office building, industrial warehouse or any number of other property types. The case may involve a debt investment, equity investment, or some blend of the two and ask you to assess the risk and/or returns from varying perspectives. The case may be to value a core acquisition or an opportunistic development. It may require you to build a ten year DCF or a construction draw schedule. The subject matter of the case will depend largely on what the company you’re interviewing for does – and so know the company, to know what will be in the case.
Presentation of Your Conclusions
How you’re asked to present your conclusions could be as simple as handing in a printout of the model or as involved as building a slide deck in PowerPoint. You may be given additional time to complete this step, or you may have to develop your conclusions as you go. What is important is to keep it simple.
You’re most likely interviewing for an analyst or associate role. Therefore, the company will not throw a case at you (or at least they shouldn’t) that is highly nuanced. The conclusions will likely be straightforward and obvious if you’ve prepared well. So don’t spend time searching for subtle conclusions. Spot the two or three obvious ones and then back them up with hard numbers.
What will likely follow the technical portion of your interview is one or more one-on-one interviews, generally with senior management in the firm. The interviewers may, or may not, have seen the results of your skills test. These interviews tend to be a mix of technical questions (e.g. what is NPV?) and questions that help the interviewer know if you’re a good cultural fit for the firm.
This is the most important part of the process, and usually the one most interviewees prepare the least for. The truth is, you could do mediocre on the technical aspect, but if one of the MDs you interview with really likes you, you’ll get the job. However, the reverse is also true. You could knock the technical portion out of the park, but if one of the MDs does not like you, you’re done. My advice is this, follow the timeless counsel of Dale Carnegie, in his timeless book How to Win Friends and Influence People:
- Become genuinely interested in the interviewer
- Use the other person’s name, often
- Be a good listener
- Talk in terms of the other person’s interests
- Make the other person feel important
How to Prepare
So now that you have an idea of what to expect from your real estate technical interview and you’ve started building a plan for how to succeed, let’s talk about how to prepare. Preparation here comes down to three general areas: 1) budget, 2) study, and 3) practice. I’ve linked to numerous resources for topics you might want to study. I’ve also added a note next to each link to let you know whether the resources is (Free) or (Paid).
Set a budget for how much time and money you’re going to devote to your preparation. How much time and money you commit will depend on how confident you feel in your ability today, and how bad you want the job.
If I was taking my first technical interview, this was my first job out of college, and the interview was in 10 days, I would budget 40 hours and $250. I would study two hours in the morning and two at night each day for the next 10 days, and purchase some Excel real estate training materials to help me. Likewise, if this was not my first rodeo, I would allot less time and money to my technical preparation and more to learning about the firm and networking with individuals there.
How much time and money you budget to this step in your career really depends on how prepared you already are for the interview.
The bulk of your time will be spent studying real estate modeling and Excel principles and practicing those principles. However, your Excel skills will only take you so far if you don’t have a sound foundation in real estate. In an earlier post, I go more in depth on what it takes to be fully proficient at real estate financial modeling (Free), but my advice here is to make sure you at least fully understand basic real estate valuation principles. For example:
- The real estate setup ((PGI –> EGR –> NOI –> CFAF)
- Risk metrics (DSCR, LTV, debt yield, default ratio, expense ratio, etc)
- Return metrics (IRR, NPV, equity multiple, ROA, ROI, free and clear return, cash-on-cash, etc.)
- Cap Rates – the value equation (Value = NOI ÷ Cap Rate)
- Stabilized vs. unstabilized cash flows
- Partnership returns (modeling waterfalls and promote structures)
- Modeling debt (amortization tables, payment calculation, payoff calculation, etc)
- Leases and lease structures (multifamily vs. retail vs. industrial vs. office)
- Operating expenses vs. capital expenditures
More than likely, if you’re reading this and you’ve secured a technical interview at a real estate firm, you have studied real estate in college and have learned the above concepts. But until you begin working professionally, what you learned in college tends to quickly be forgotten. Here are a few resources, free and paid, that will refresh your mind on the most relevant topics:
- The real estate setup. I’ve built a basic real estate setup in Excel (see download link below) and added it to the other models in our library of real estate Excel models (Free). Feel free to download, study it, and make it your own. As you go through the model, pay special attention to the order:
- Potential Gross Income plus reimbursement income less vacancy and credit loss becomes Effective Gross Revenue.
- Subtract out operating expenses (non-capitalized expenses) such as common area maintenance, insurance, and real estate taxes to arrive at Net Operating Income (which when divided by the cap rate, assuming the NOI is stabilized, gives you its value).
- Subtract out leasing and capital costs to arrive at Cash Flow from Operations, or free and clear cash flow available to cover debt service.
- Subtract out debt service and any ground lease payments to arrive at a Cash Flow after Financing (but before taxes) figure.
Quick note before continuing: while I use CFO in many of my risk and return ratios, some people use NOI in place of CFO (e.g. Free and Clear Return could also equal NOI ÷ Value). The convention used really depends on where you work, how conservative a firm is, and where the management learned to value real estate. There is no right answer whether to use NOI or CFO in most ratios, it just depends on who you’re modeling for.
- Risk metrics. The above model has DSCR (debt service coverage ratio = NOI or CFO ÷ Debt Service), debt yield (NOI or CFO ÷ loan amount), and LTV (loan-to-value = loan amount ÷ property value) calculations included. The folks at Property Metrics also have a post on the subject that is helpful (Free).
- Return metrics.
- The above model calculates IRR and equity multiple, both on an unlevered (before debt) and on a levered (after debt) basis. Columbia University has a tutorial on calculating IRR in Excel (Free), and Realty Shares has a decent article on IRR and equity multiple calculations (Free). You can also see my tutorial on IRR Partitioning (Free).
- The free and clear return (CFO ÷ Value in a given year) and cash-on-cash return (CFAF ÷ Equity in a given year) are an indication of how much income the property is throwing off. You can read more about cash-on-cash returns over at Realty Mogul (Free).
- Return on asset (CFO ÷ Value), and Return on investment (CFAF ÷ Equity) are concepts that some real estate shops use more than others. Return on asset is a variation of the value equation, which leads us to:
- Cap Rates. CRE Online has a post on cap rates (Free). But if you’re looking for a more complete, academic discussion on cap rates, a former professor of mine at my alma mater (go Big Red!) has an excellent paper on capitalization rates (Free).
- Stabilized vs. Unstabilized Properties. I found this PowerPoint presentation from the Appraisal Institute on unstabilized properties (Free). My only other comment is to reiterate what one of my favorites professors from grad school, Wally Boudry, would always say: “Never, ever, ever cap an unstabilized cash flow!”
- Partnership Returns. Modeling the partnership waterfall, with the complications of multiple partners and promote structures can be a daunting task. You’ll want to go into the interview with at least a conceptual understanding of partnership structures. I’d suggest you download my Equity Waterfall Model (Free) and work to understand the logic.
- Modeling Debt. You might check out my tutorial on building an amortization table in Excel (Free). Also, the basic real estate model (above) shows how the payments (debt service) flow into the setup. You might also brush up on your basic finance skills, they are crucial to understanding virtually everything going on in your modeling.
- Leases and Lease Structures. My co-contributor, Mike Belasco, has a nice series on understanding commercial real estate leases (Free).
- Operating Expenses vs. Capital Expenditures. Essentially, CapEx goes below NOI while operating expenses go above NOI. The REFM course I mention below covers this, as does my basic real estate model I linked to above.
All-in-One Self-Study Courses (Paid). Bruce Kirsch over at REFM has some great all-in-one self-study courses (Paid). If you’re 100% committed to acing the technical interview, purchasing a course is the way to go.
Studying the concepts that will be part of the technical interview is only half the battle. If you aren’t able to put them into practice you will fail the interview. Additionally, if your Excel skills could use some improvement, you’ll want to budget time to master the Excel fundamentals. Here are some great resources, free and paid, for getting the necessary reps in before your big interview:
- Fundamentals of Real Estate Financial Modeling (Free) – This guide provides insights into mastering financial modeling, and includes a list of resources near the bottom of the post that will be helpful here; especially if you’re looking to improve your Excel skills.
- REIT Financial Modeling course (Paid) – Most of the resources I linked to are valuing real estate from the prospective of a private owner/lender. This course from UDEMY covers the topic from the lens of a REIT (public equity), which brings a few important differences (e.g. FFO, AFFO, NAV, special tax treatment, etc).
- Library of Real Estate Excel Models (Free) – One way I like to practice, is to grab an existing real estate model, make a copy of the model, delete the formulas from the copy, and then attempt to rebuild the model from scratch. Our library of Excel models has numerous models that you can do this with. I suggest starting with the basic real estate model I discuss above. You might also work with the Equity Waterfall IRR model, the office/retail/industrial valuation model, or the apartment valuation model.
- What’s in a Real Estate Private Equity Case Study (Free) – Brian at Mergersandinquisitions.com has a great post and video on private equity real estate case studies. Here is the video:
- Investment Analyst Case Study (Free) – From the same M&I video/post just linked to, this case study from Seattle is great practice.
- Job Interview Test for Ground-Up Apartment Building (Free/Paid) – REFM has created a sample test using an apartment building for the case study. The test is free, but the answer key is $99.
I hope the resources I’ve provided will be of help as you prepare for your technical interview. The technical interview is as much a test of your time management skills, ability to work under pressure, and personality as it is a test of your real estate financial modeling skills. So relax, enjoy the process, plan well, study hard, and practice until perfect. You can, and will succeed at this interview. And when you do, reach out and let me know where you’ve landed! If you have any other questions or comments please don’t hesitate to email.
About the Author: Born and raised in the Northwest United States, Spencer Burton has over 15 years of real estate investment and development experience. In his current position, Spencer assesses new acquisition, development, and debt opportunities for a $45bn real estate fund. He resides in Dallas, TX.