Leveraged Breakdowns

A student recently asked the following question: Hello, I’m a residential real estate broker who wants a career in real estate private equity. I am a 34 year-old with a business management degree. I have a resume of small real estate investments, emergency services, and real estate brokering. Currently, I am pursuing a financial modeling certification and applying for a Full Time MBA, since it is a big career change. Do you have any suggestions on education or track to go down? Also, would like to know what skills to obtain over the next year -- I’d like to stop being in a commission job. Below is my advice.   Full-Time MBA   Pursuing a full time MBA is a good idea. You could also get a masters in real estate; though you may prefer an MBA given its general appeal to other opportunities outside of real estate private equity jobs . You’ll likely appreciate this article , in which I interview an acquisitions analyst who broke in from a non-target state school. Th...

One of the most frequent questions we get at Leveraged Breakdowns deals with understanding the mindset of the hiring manager at real estate private equity firms. What are they looking for? What questions will they ask? It is very natural to obsess on these questions from your own perspective, but it may be most helpful to look at things from his or her perspective. The View From 30,000 Feet Hiring is always a balancing act. On one hand, the hiring manager needs to assess both hard skills (job related) and soft skills (people related), but on the other hand he or she needs to address both the immediate job opening as well as the future needs of the firm. All of this is happening within the context of company’s prime objective: generating positive, out sized private equity real estate returns for investors. Skills Real Estate Private Equity is a high-pressure, high-stakes business. The hours can be grueling. Your interview will likely mirror this. To assess your hard skill...

As an REPE analyst, you will build very complex real estate private equity models and be responsible for their accuracy and completeness. Depending on the firm you work for, your model may take into account the tax effects on investment returns. If so, you may want to consider a cost segregation study for property acquisitions. What is a Cost Segregation Study? A cost segregation study is a detailed analysis of a property that breaks down the value of a building into different components in order to apply various GAAP or Tax depreciation schedules. As a quick real estate investment case study, if your firm purchased a stabilized office property for $20,000,000, a cost segregation study might break down that value into several components, as follows: Land Value: $2,500,000 Parking Lot: $500,000 Building Structure: $13,000,000 Heating and Cooling System: $1,500,000 Conveying Systems: $250,000 Tenant Finishes: $2,250,000 Breaking the purchase price down into the different...

Are cap rates wicked simple or wicked complicated? The snarky answer is “Yes.” What we mean is cap rates have an “everyday” application that is intuitive and simple. Its foundation, however, is much more complicated. As you move toward a career in a real estate private equity firm, you will need to learn to use cap rates in their simple form. But it never hurts to understand the origins of the concept.   What is a Cap Rate? To begin, the term “cap rate” is shorthand for “capitalization rate.” The term is well-defined in real estate appraisals, and is aimed at determining a market rate of return for the property being appraised (see more on appraisals here ). The appraisal breaks the cap rate down into three component parts: the risk free rate, the equity rate, and the debt rate. The sum of these three rates becomes the capitalization rate used to arrive at the property value based on the income approach (specifically, net operating income divided by the cap rate equals th...

Back in June we discussed the number one skill that will help you become your fund’s favorite analyst . This month we want to talk about the number one character trait that will make you into the most trusted analyst in your real estate private equity firm . This character trait will also establish the trajectory of your real estate equity career path . What is this trait? Integrity . Can I Trust The Model? One of the greatest temptations you will face as an analyst is to force a model to create the results you really want (or the results your boss really wants). There are all sorts of ways to manipulate a model. Trim one of the expense line items a little more than is really achievable. Assume lease-up occurs faster than what the leasing team expects. Cut the capital expenditures beyond what is prudent. The list is endless, because the variables that go into the model are endless. Resist the temptation. Let the results speak for themselves. Be disciplined in understanding the ...

The key to landing your first job in real estate private equity is to crush the interview. As an outsider to the industry, though, you run the risk of looking like an outsider if you don’t know the terminology forward and backward. No one wants to see that look on the interviewer’s face when you just said something that proves that you don’t know what you’re talking about. At Leveraged Breakdowns , we are committed to helping you become fluent in the language of real estate private equity and common interview questions. We also give you hands-on training with our real estate investment analysis online courses . Why isn’t it Just A Prepayment Penalty? Lenders love to throw in penalties in the event a loan pays off early. The early payoff could be due to the borrower refinancing or it could be due to sale of the property. The lender doesn’t really care. When lenders deploy capital, they do not want to see it come back early. They are managing cash flows and earning the spread be...

One of the questions we often get is whether there is a real estate private equity certification that will help applicants stand out from the crowd. There are a few certifications available, but they validate the experience a person already has. Put another way, most certifications require documented relevant experience in order to receive certification. If you already had experience, you would already stand out in the real estate private equity interview process ! Don’t let that deter you, however. Continuing education and certification can be a benefit to you long term, both in terms of skill development and in growing your professional network. There are a few options to consider. Certified Commercial Investment Manager (CCIM) The CCIM Institute is a global leader in real estate education, and is sometimes referred to as “the PhD of real estate.” There are over 10,000 CCIMs worldwide in more than 35 countries. Coursework includes financial analysis, investment analysis, us...