Developing Market Knowledge, Part One: Passion

Passion sets you apart from your competition

 

The daily responsibility of a career in real estate private equity is to think and hypothesize. We build models to address hundreds of what-if scenarios, trying to figure out the most likely path forward. We ask lots of questions and try to see each investment opportunity from as many angles as possible. So naturally, nearly all repe interview questions are simply looking to test your ability to transpose and reconfigure investment problems in real time.

This is where passion comes in. We only want to hire people who are actually passionate about working through these problems every day. If you aren’t passionate, the work will feel exhausting and tedious. If you are passionate, then your curiosity and drive will propel you to succeed as an investor. So how do investors judge whether you’re truly passionate in an interview setting?

Knowledge demonstrates passion

To demonstrate passion, you need to prove competency with two broad categories of knowledge. The first category is technical skill. This is stuff like building models, knowing your accounting, understanding the fundamentals of finance, mastering definitions of real estate terms like NOI, NAV, Tenant Improvements, and otherwise knowing facts that you can learn from online educators and university courses. Leveraged Breakdowns offers many venues to develop this set of knowledge, from free case study challenges to deep-dive courses teaching you to model from complete scratch.

The second body of knowledge you must master is market knowledge. If your responses to repe interview questions demonstrate a firm grasp of market knowledge, you’ll be miles ahead of your competition. But what exactly is market knowledge?

What is market knowledge?

Most simply, market knowledge means understanding what’s happening in real estate right now at this exact moment. As an investor, you can never separate yourself from the current marketplace. Your career in real estate private equity will always take place in the present, never in the past or in the future. In other words, you have to stay on top of current events in real estate.

As an interview candidate, this means you can’t only master the hard technical body of modeling knowledge and expect to succeed. You must also think about current real estate markets as if you have billions of dollars to invest this year, and you need to think through the best way to commit that capital.

Comparing technical and market knowledge

For comparing the two sets of knowledge, my favorite analogy is this. Understanding modeling is like knowing how to answer the question “what’s two plus two?” Nobody is going to hire you for saying four, but they certainly won’t hire you if you get the answer wrong. In other words, technical knowledge is expected, but it won’t set you apart or get you hired. Technical capacity is a gating screener that cuts out the candidates who are an absolute waste of time.

But if you want to actually succeed and get hired, you need to demonstrate a true passion for real estate investing. And being able to talk about markets in a nuanced fashion as an interview candidate is a surefire way to demonstrate real passion. But how do you demonstrate that interest? Even if you’re passionate, even if you absolutely know you’re cut out to be the best investor in the world, you might be at a loss when you’re first starting out. Where do you even learn about markets? How do you learn what’s necessary to come across as passionate to an interviewer?

Stay tuned for our next article, which will share practical advice to help you develop market knowledge.