Tips for IRR mental calculations and other interview maths questions
Would very much appreciate any tips/techniques to avoid sounding/looking like an idiot during an interview 🙏
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What geography are you recruiting in?
London but I hear that it's standard procedure in the US too.
How's your search going so far?
Not great: very few opportunities and very long processes.
2x in 3yrs: 25%
2x in 5yrs: 15%
3x in 3yrs: 45%
3x in 5yrs: 25%
Use averages to get close if it's intermediary. idk anything for 7yrs without paper sorry
Thanks a lot !
This is it for the IRR question - just memorize a few of the correct answers. I have been asked 2x in 4yrs (20%).
The other mental math questions are just going to depend on you actually understanding the finance/real estate cash flows. If you don't its gonna be tough to not sound like an idiot.
So this is saying a 2x return in 4 years is what IRR?
Rule of 72 is basically all you need
Thank you very much ! How this rule would apply for the following example:
-Purchase price/sale price: 100
-Cap rate: 5%
-LTV: 80%
-Debt Cost: 5% per annum
No other costs
What would be the IRR after a 2 year holding period?
Bit of a trick question. IRR is 5%. Debt cost is the same as the yield so no effect from leverage.
Interested in what kind of firm asked you this question?
As a side not have you ever tried modelling simple examples to try and understand how the maths works? I find that quite useful. Ie the coc here is 5% as debt is non accretive, so your irr will remain at 5% if there's no capital growth
Is this the full question? The property doesn’t generate any income for 2yrs? Something is missing
Also heard of 115 (actually 114 but round) for tripling and 144 for 4x. Not sure if you actually need to know that tho
This is just a derivate of the rule of 72 - to 3x and to 4x takes 1.5 and 2 times longer than to 2x, respectively. Ergo, multiply 72 by 1.5 and 2.
To give you an example of how I personally approach it: if someone tells you a 3X was achieved in 5 years and asks you IRR. I know it doubled in ~3 years (5/1.5). 72/3 = 24% IRR. All rough math obviously but it's easy to remember and gets you close enough for a quick mental heuristic.
Just build yourself a little table of 9 key numbers and use those as guard rails to get within 5% of whatever they throw at you
3yr 1.5x / 2x / 3x
5yr 1.5x / 2x / 3x
7yr 1.5x / 2x / 3x
Match IRRs up and should be able to navigate from there. If they ever ask IRR on a 4x or 5x or something stupid just say "it don't matter baby we rollin' in carry at that point and beating off potential new LPs with a stick"
You want me to tip you? I only tip my dentist
I’ve never been asked to calculate IRR in my head. That’s an absolutely ridiculous request and I doubt the interviewer can do it either…
It is quite common during MF interviews. Had it at both Blackstone and Starwood.
Interesting. I’ve interviewed at both blackstone and Starwood and was never asked this as a question.
Yup. If someone asked me to calculate an IRR in my head I'd be very confused about the interview and genuinely ask "why?"
Seems like mental masturbation
Is this a UK only thing. This shit sounds ridiculous.
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