My experience is all on the development end (permitting, project management, leasing, etc..). I want to become more involved in the acquisitions side. Company will not pay for any training so I am on my own. I went to library and got a couple of how to books on excel and ordered Brueggeman's finance book which has excel templates.
So what is the timetable on becoming good at RE modeling? not great, just good.
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All depends what you're looking to be able to model. If you understand the basics of the financials, just modeling a pro-forma in excel isn't too difficult. For example, a ten-year pro-forma where all you're doing is getting leases into the revenue line, adding some vacancy assumptions, projecting expenses, putting together sources and uses, getting to NOI and cash flow and then calculating returns/IRRs, maybe a couple weeks or a month depending on how many hours a week you work at it. Now if you need to model waterfall distributions, that might take a bit longer. Also depends on your experience in excel (if that's all you're using). If you really understand what you're doing and what you want excel to do, you can google excel functions to figure out how to get excel to do it. Most of real estate is basic arithmetic, with some present value functions thrown in,
With zero excel experience, this might be a good bet: http://www.getrefm.com/
how complex does RE get in excel? I can learn the financial fundamentals quickly, but the actual computer programming takes me much longer. So with RE, is a basic level of excel computing ability ok?
Everything I use is pretty basic functions, but I'll let others chime in that might model more complex deals in excel (we use a combination of Argus and excel). Some functions I use (besides + - / * ^): sum, sumifs, countifs, count, IRR, XIRR, Min, Max, Average, median,sumproduct, FV, PV, rate, pmt, npv, cumipmt, cumprinc, edate, round, rounddown, roundup, tables, vlookup, hlookup... that's all I can think of off the top of my head, I'm sure I'm missing a few I use every now and then.
Agree with the above, apart from the mechanics of modeling a waterfall distribution you shouldn't have much trouble grasping the excel part. You'll just notice how much more efficient you become as your experience grows.
Real estate in Excel is pretty simple. If you understand the inputs and the math behind it, it's pretty simple. If you have little or no finance or real estate background, I think that makes the learning curve much more difficult. But if you understand how different inputs interact with one another already then the hard part is already learned.
In 100% honestly, the hardest part about financial modeling is getting the right inputs, especially when modeling, say, land values (potential purchase price) for a development. To have a "good" model you need the correct cost inputs, correct time line, proper discount rate, proper sales price or end valuation. That's the the truly difficult part.
Thanks all. So I've been practice modeling for last day or so. Previous to this I was competent with the analysis (ie figuring out yield with a pen and paper), my concern was that I would be computer literate with Excel. After doing some practice problems of internet it looks like you can get pretty far with "basic" excel.
here is what I have done so far:
Gross Potential Income (GPI)
Gross Operating Income (GOI)
Gross Rent Multiplier (GRM)
Cash Flow Before Taxes (CFBT)
Cash Flow After Taxes (CFAT)
Net Operating Income (NOI)
Capitalization Rate (Cap Rate)
Break-even Ratio
Return on Equity Year One
If I get these "mastered" on excel, is that what a first year analyst is expected to do?
I wouldn't think you'd use GRM if you're involved in any kind of commercial real estate.
Potential Rental Revenue -(Absorption & Turnover Vacancy) =Scheduled based Rental Revenue +OPEX Reimbursement +Misc/Other Reveue =Total Gross Revenue -(General Vacancy) =Effective Gross Revenue -(Operating Expenses) =Net Operating Income -(Leasing & Capital Costs) =Unlevered Cash Flow -(Debt Service) =Levered Cash Flow
NOI / Cap Rate = Direct Cap Valuation I haven't seen the term return on equity used much. Returns I think you'll more likely see are return on cost and cash-on-cash return, as well as IRR.
Modeling can be very simple or very complex in real estate. Working at a REIT....we get very granular in our corporate model, but keep it very simple in our investment models. PE/development models tend to get more complex with tax effects, waterfalls, refinancing, promotes, clawback....you get the point.
First year analysts don't need to know investment modeling. You need to know excel -- throw your mouse away and learn how to use excel "like a banker". If you are doing PE, learn waterfalls (ULI has good models). If you are doing REIT work, know the mechanics of FFO accretion.
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