Scared Shitless: How Did You Actually Learn How To Competently Build Financial Models

The Assman's picture
Rank: Gorilla | banana points 742

So I get that everyone's read the WSO guide on how to walk an interviewer through a DCF, LBO, etc., and most of us took classes in college where we've built simplified practiced models of one form or another. But I'm about to start work (investment analyst at a REIT) next week, and as far as I know all training is going to take place on the job. So my question is - how did you learn the technical skills of your job and how long did it take you to master the type of financial modeling you do? Were you baptized by fire? Slowly given more and more sophisticated projects to work through? Designated training week where you learned the fundamentals?

I'm scared as hell that I'm going to be thrown into the thick of things upon my start date and crash and burn. I'm a quick learner and I get the gist of financial modeling but when it comes to assembling one from scratch I just wouldn't really know where to start and how to get all of the proper inputs.

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Comments (49)

Jul 25, 2018
Tourettes God:

So I get that everyone's read the WSO guide on how to walk an interviewer through a DCF, LBO, etc.,

Are you referring to this thread? https://www.wallstreetoasis.com/forums/investment-... If not, can I get a link please?

Jul 25, 2018

WSO Technical Interview Guide. For sale under Courses.

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Jul 25, 2018

Sweet, thanks and good luck

Jul 25, 2018

It's fine. You'll learn on the job.

If you're really that concerned, go onto adventuresincre.com and watch the tutorial guides for every single model that they make.

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Jul 25, 2018

Agreed, this helped me

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Jul 25, 2018

Ask for materials to help you prepare before your start date?

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Most Helpful
Jul 25, 2018

The modeling itself is not rocket science, you'll be fine. If it's a REIT, there's a good chance you won't be doing anything truly 'from scratch' for quite a while. They generally have lots of templates and processes in place. It's a lot different than going to a boutique firm and basically re-inventing the wheel for the senior partners since the only person who knew excel was your predecessor who has left already.

The way to get ahead is take good notes when you first start so you are organized/remember things after someone explaining it to you one time. Then when you learn where all the files are, start looking through/reading the different models and materials you're given and deconstruct them on your own/come up with good questions to ask the senior analysts/associates training you. This seems like common sense but you would be surprised how many dumbshits there are that do not do this when they start.

Knowing where to go for what information just takes time. And sometimes this is what separates the good acquisition people from the bad ones if you are able to get asymmetric/better information than your competitors. This will make you lose some deals you shouldn't have won even if you wanted to, and will let you win some deals you wouldn't have otherwise.

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Aug 3, 2018

From training materials at my first BB job, analysts weren't expected to be proficient / handle the industry specific modeling solo until ~12 months.

This was based on how they'd be ranked / compared to other analysts for comps.

Jul 25, 2018

Big proponent of dissecting an already made model. This is how I learned. That's how I learn best at everything though (ask my mother about her thoughts when she came home and saw the TV taken apart).

I imagine if you weren't asked to build a model from scratch during the interview you won't have to day 1 of a new job. Absorb everything you can and don't be afraid to ask questions. Different models will spit out different results for different reasons. Also, there's nothing wrong with being baptized by fire. A damned good way to learn, and learn fast.

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Jul 25, 2018

How long would you stay it took you to get competent enough that you could actually lead the underwriting of a potential acquisitions deal?

Jul 25, 2018

It probably takes between 6-12 months to understand everything and be able to model out the scenarios. It takes probably another 6 to be able to do things really efficiently/close to perfect every time. It takes probably another 2-3 years in my opinion to really get savvy with respect to understanding capital needs, rent forecasts, expense estimates, etc. to the point where you are better at it than most. This also depends on how much ground you're covering. I started off in a single market, then gradually evolved to covering more ground. So while the subsequent markets each took less time for me to learn than the one before it, there's definitely an adjustment period. Takes time to understand the economic landscape, the major players, the properties themselves, local/state municipality impact and involvement, etc.

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Jul 27, 2018

I don't think @MonkeyWrench is off on those estimates (below). I'm in the 6-12 months time frame, and would be the first to admit I still have an incredible amount to learn, but also can tie that back into other posters thoughts since I haven't had the opportunity/exposure to everything yet.

Just focus on sound fundamentals at first. I was just reading a thread where people were debating proper inputs, outputs, leverage, different markets. It's all relative, but take it with a grain of salt. The more exposure you get, coupled with sound fundamentals, the better you'll be overall. On the surface IRR/Cap Rates/NPV (Insert Metric) could mean something different to every owner/operator/developer. Just make the case to back it up.

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Jul 25, 2018

I wasn't going to say anything because I know I will get MS for it, but honestly a lot of this type of work/skillset will become obsolete in coming years. There is literally software that does everything for you.

Financial modeling skills shouldn't be a big concern. Learning how to pull data from software and analyze it is what will help you get ahead. Also learning various programming/querying languages and advanced analytics software is what every upcoming accounting/finance professional should be focused on.

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Jul 25, 2018

Interesting take, but right now my primary concern is just this irrational fear that I won't learn how to model fast enough so they'll give me leasing and property management bitch work and then I'll get pigeon-holed with that type of work while the Wharton grads eat my lunch in Acquisitions because they came in the game with advanced modeling skills. ):

Jul 25, 2018

The software itself isn't the value add from the education, it's understanding how the math works and being able to look at a cash flow and know what is legit and what is BS. The actual modeling part of it is just a stepping stone to learning the financial metrics/market knowledge in my opinion. One thing that won't be automated (not for a very long time at least) is experiential information. For example, let's say you have two buildings right next to each other, same general size, specs, etc, except that one of them is has inferior loading/truck maneuverability to the other, and therefore should command a lower rent. But the algorithms (at least as they exist today) wouldn't have a binary way to code for this, and therefore you'd only be able to know this from touring the building or knowing the market well going into it.

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Jul 25, 2018

This is my view. It is not like a shop with 5 underwriters will suddenly have 0 underwriters. But I can definitely see a shop having 2 underwriters and getting by. There is just that much inefficiency and waste. Plus, we all know what we do is not rocket science, we have become better at it because of reps, we do the same thing over and over and over a period of time we have become better at it, but am i wrong to think that I am overpaid? I can honestly see one of our admins being trained to do what I do. And I am at a big bank. If the admin who might be earning half of what I am earning right now, is diligent, coachable and is willing to put in the hours and the hard work to basically shadow and train under me for 6 months, that is more than enough to make that admin an analyst. And the bank can also get away by paying the admin half the pay. That shows you that this is not rocket science.

Secondly, another threat I see is Situs/Spring 11 type companies. As they become better, it is only a matter a time a shop with 5 underwriters can get by with 3 people. You just need to check their work and have some oversight. These are local folks, its not like your outsourcing work to India. It makes too much sense to not outsource work and pay less and not have a bloated payroll in a cyclical business.

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Jul 26, 2018

Agree with everything you wrote, the only thing I would say is that on the pay, you also have to account for the fact that in a lot of cases companies overpay for current value-provided based on projected potential/talent of an employee. I.e., they pay potential high-performers more to get them to stick around for what they might do later, not necessarily because what they are doing at the moment is anything remarkable.

It could be quite possible that the admin could learn your job but then wouldn't have any future potential/growth ability.

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Jul 26, 2018

Agreed. Like I said in the comment below, a lot of the rainmakers at certain REPE funds are relatively unsophisticated with excel. I think the point of hiring Analysts is that they'll learn to identify potential value in properties and think critically about proposed transactions beyond just plugging pre-determined numbers into a spreadsheet. Sure an added bonus of having analysts around is that they can grind through spreadsheets and memos, but ultimately I think the idea is to train them to be able to identify and execute lucrative deals.

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Jul 26, 2018

^This

Aug 1, 2018

Lets agree to disagree, and its okay for us to have different views on this. My view is that what we do is not rocket science or surgery and somebody within 6 months to a year will be upto speed and ready to hit the ground running. This is not the nba or the nfl where one is drafted based on potential or what somebody will bring to the table 5 years from now. The 40 year old admin that I am converting to an analyst (with half the pay keep in mind) after a 6 month boot camp should be more than ready to be in a senior acquisitions role in like 5 years time. No reason for me to believe that an admin has any less future potential given the type of work we are doing.

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Aug 2, 2018

I don't disagree with your premise that people CAN do it - what I was getting at is that I think it's reasonable to assume - on average - that someone who is a 40 year old admin switching career tracks has less 'potential' than a young go-getter and therefore doesn't command as high of pay due to lower perceived potential. The lower perceived potential I mentioned has two components, one of which is just physical time left on earth/in the work force. If we want to get really nerdy on this, we can even apply time value of money to this. You said yourself you're paying half the money to train him/her - this is worthwhile for you because you would theoretically have to spend some time training this person, but they are going to have an even more compressed timeline of when they want to get promoted, etc. just from the simple fact that time is not on their side the way it is for a 22 y/o. You also aren't getting as much ROI because (assuming the person stays with the firm) they have maybe 15-20 years left of prime productive working years, whereas a 22 y/o has double that. Again, you could argue that the older person has less flight risk (because us millennials are impatient AF), and that would be a valid point as well. I'm just talking aggregate timelines assuming both people stay 'on the path'. And also, obviously its safe to assume that the younger candidate has more options than the 40 y/o, and optionality is definitely worth $.

The other factor I'm alluding to with 'potential' is street smart, savvy, whatever you want to call it. I realize that everyone is different, but it seems highly unlikely to me that someone who has the mentality and wherewithal (and other intangibles) to succeed in a senior acquisitions role would need until 40 to figure out that's what they want to do instead of admin work. Learning the underwriting is one thing, but figuring out how to get deals done is definitely a more uncommon skillset to possess. I admit this is a huge generalization, and you may have a rarity in the admin you're training who can and will be able to hack it, but I think this is the exception, not the rule. There are also people that are perfectly content being career analysts, and there's nothing wrong with that either. It's obviously worthwhile for them because they are getting a 'shot' and training that most people wouldn't be comfortable giving a 40 y/o without any experience that wants full pay.

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Aug 3, 2018

In a CF role at a BB and its interesting. We had a few conversations with upper management and the consensus was that there is always a better process (whether that be writing a macro to automate a repetitive task to a completely better operating model for gathering data / creating models / etc). The kicker is that unless it is CONSIDERABLY (we're talking multiple times better) than the current method / process its never going to truly disrupt the process already in place.

Imagine having a mundane yet slightly complicated task of having to strip data from files / servers and use that for your models. It might take you 5 minutes to do that but I can attest that I've thought to myself dozens of time "fuck I can automate this shit with a few hours of messing around with a couple macros". Just so happens that I rarely have 3 free consecutive hours lying around. Now take that thought process and extrapolate for an entire firm / industry (making modeling obsolete). Like I said above... unless something is multiple times more efficient it really isn't a big enough change to disrupt jack shit...

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Aug 3, 2018

Often the word disrupt is often seen as a threat to people, when I say disrupt, I dont mean there will be NO underwriters or analysts at a shop. My comment essentially said that there can very easily be fewer underwriters or analysts- or at the very least get people to do what the analysts (basically the out of college folks )do for half the pay. And this does not mean outsourcing the work to Asia, the work can still be outsourced but done locally here in the US. That is disruption in my opinion.

Aug 10, 2018
FinancelsWacc:

It might take you 5 minutes to do that but I can attest that I've thought to myself dozens of time "fuck I can automate this shit with a few hours of messing around with a couple macros"

Agreed. Reminds me of that XKCD comic on automation (too new to post the link...)

https://xkcd . com/1319/

Jul 27, 2018

I like your thought process on this. What kind of programming/querying languages would be most beneficial to start learning for someone on the analytical side of RE?

Jul 28, 2018

Python, SQL, maybe VBA imo.

Aug 6, 2018

Would also counter that learning to model with excel would help ascertain various comprehensions of analytic software/programming languages as it is essentially 'basic' logic compared to aforementioned programs.

Not sure why it put the comment down here...I was responding to Neutrino.

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Jul 25, 2018

Every analyst starting out is in the same boat as you and every Repe God out there has been in your position at some point in time. Just make sure when you work on a project you really, really think about what you're doing and absorb the logic of it - even when they start you out with the lighter projects. Modeling is hypothetical in nature. You're building a model of what you think should happen according to certain assumptions. The model is the easy part, the hard part is understanding the value drivers and factors that affect those assumptions. There are a lot of analysts out there that are incredible with excel but can never be trusted to actually identify solid deals. Likewise there are many high level employees, making a killing that are embarrassingly unsophisticated with excel but understand exactly what to look for and avoid in a property. Don't let the modeling intimidate you, it's just a bunch of multiplication and division in a spreadsheat.

You'll get the hang of it, we all have faith in you

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Jul 25, 2018

For a REIT you don't need to shit your pants because all of your modeling is unlevered at the property level. If you are where you are now and can't model property level CFs and then you add construction debt and JV waterfalls on top you probably should shit your pants. But just property level CFs at a REIT you'll figure it out no problem.

Jul 26, 2018

Not sure exactly what you're saying. The REIT I work for is more like a Gramercy/JBG SMith type of REIT that does operate with leverage and does certain development projects, as well as JVs.

Jul 26, 2018

If you're at a shop that big they are going to train you at least to some extent... I don't know why you're stressing about this before you even get a lay of the land.

Jul 27, 2018

Well then "yikes"!

Jul 26, 2018

I remember when I started my current role and received a model from AM to update and I didn't even know how to do a SUMIF..

You learn. Whether it's from the RE technicals side to the actually Excel portion.

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Jul 27, 2018

Manually suming each 12 month period so that you can provide annual figures for your boss. Fuck me I was inefficient as an intern.

Jul 26, 2018

Haha, no one is going to expect you to be building models from scratch on your first day. They'll probably have you updating/formatting investment packages for a while and then slowly work you into providing more analytical/research support to the building of models, and then eventually you may start working on taking a lead role in some modeling projects. It will be a loooooong time before anyone expects you to take the lead on underwriting a new acquisition.

Jul 27, 2018

What others have said is pretty much correct. The most important aspect of modeling is understanding the concepts that you're modeling. A beautifully formtatted model that is highly sensitized built by someone who doesn't understand their inputs is less useful than an entirely hard-coded model built by someone who is highly competent. At the same time, provided you understand your inputs and how they affect things, being competent at modeling will allow you to be more thoughtful about your inputs, as opposed to being intimidated by the task of building a particular model and/or uncertain if you're doing it right.

That said, IMO, being good at modeling is a good way to stand out to senior guys because most of them don't do much in Excel, so it's one of the few things you do better than they do (provided you understand the inputs).

The road map to being able to model well is:

1) Learn and understand the concepts you're modeling
2) Get your hands on progressively more complex models to get a feel as to why they're doing what they're doing and how they're organized
3) Start building simple A1 models
4) Make those models progressively more complex
5) Always try to identify areas in which your models are inefficient or not dynamic and try to figure out how to make it better

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

Jul 28, 2018

GetREFM. Throw down the $200-450 for student-rate courses on the topics you need. You'll easily recoup that on the job and be quicker as well. An investment in yourself is the best you can make. (I don't work for this company, but think they have the best material on modeling 101). Adventures in CRE is also good and free.

Aug 1, 2018

Let me just put this out. Hopefully all of us on this forum won't have to use excel one day. That's how you know "you've made it." Most of the big guys in this industry probably did their math on the back of a napkin. They're wheeler and dealers and making relationships. Crazy to think they don't even use excel and make us do it.

Aug 5, 2018

I'm in similar boat as you (starting in about a month) and was just talking to my friend about his. He said for the first few weeks, he was hardly doing any actual work and mostly just being CC'd on emails containing different investment files so he could view them, learn from them and get an understanding of the type of work his team did on a day to day basis. After that it was mostly updating/formatting and then getting into spreading comps. After another few months he started actually inputting cash flows and playing around with sensitivity tables. He's a year in now and is just getting to the point where he might be asked to head the charge on underwriting an investment, but even now makes plenty of mistakes and often has help from his seniors in the process.

Aug 7, 2018

Let me give you the REAL answer.

You will always want to err on the side of simplicity (as opposed to complexity)

How do I project Sales? 2.0% Growth, if anyone asks (they wont) its Long Term Inflation, goy.
EBITDA? Straight up % margin from Sales.
Think you need a Depreciation Waterfall? WRONG! % of Sales.

What bout balance sheet accounts? WC can be a real *****. Good news. All you do is divide SALES by 365.

Take it from someone who got f*cked hard trying to be accurate/correct in his first year. When someone gives you an assignment do the 1) MOST SIMPLE VERSION of the task, 2) AS QUICKLY AS POSSIBLE, which leaves time for 3) PERFECT EXECUTION.

This is the formula to success. The additional effort you spend on 1 compounds and hurts the rest.

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Dec 26, 2018

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Funniest
Dec 27, 2018

This may be the most grammatically incorrect post of 2018, congrats.

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Dec 27, 2018

I doubt they will expect you to know more than the basics of DCF modelling, but can't hurt to look into the basics of accretion/dilution analysis.

Dec 27, 2018

Any resources for that? I don't even 100% know what transaction modeling would entail.

Dec 27, 2018
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Jan 7, 2019