How To Prepare For a Real Estate Financial Modeling Excel Test

Excel exams are often one of the last steps of the commercial real estate interview process before you receive an offer, since most firms will actually want to see the technical skills that you said you had throughout the interview process.

Coming in prepared for an exam is a huge part of ultimately landing an offer, and while these do vary a lot between companies, there are a few things I recommend in virtually all cases to get ready for a test.

So whether you have an exam coming up, or you just want to make sure you’ll be ready for an exam that might be given to you in the future, this article covers my top three recommendations to prepare for an Excel modeling test during the real estate interview process, and the things that are actually worth focusing on to get the most out of your prep.

If video is more your thing, you can watch the video version of this article here:

Practice Creating Models From Scratch Using Given Assumptions

The first thing to focus on when preparing for an Excel modeling exam is practicing building out models from scratch using a given set of assumptions.

In the vast majority of cases, these tests are going to be structured in a case study format, meaning that you’ll be given a set of assumptions around things like a property’s purchase price, closing costs, operating revenue, operating expenses, assumed revenue and expense growth rates, vacancy rates, and even sale assumptions. You’ll also often be given details on assumed debt terms, including a loan-to-value ratio, an interest rate, and an amortization period.

And using this information, you’ll then be asked to create cash flow projections that are going to be used to answer questions about the performance of the investment, including equity return metrics like the IRR, equity multiple, and cash-on-cash return, and debt metrics like the loan constant, DSCR, and debt yield. You may also need to use these cash flows to run additional calculations and solve for things like a maximum offer price given a target IRR, or to run a sensitivity analysis to view the impacts of different market conditions on the deal’s return metrics.

The exact details of the assumptions and questions given on each exam will obviously differ from company to company, but the core of almost every modeling test is going to come down to taking deal assumptions that fall into one of these categories, building out a dynamic cash flow model that incorporates these assumptions, and then using what you’ve built to actually analyze the deal (often in a variety of different investment scenarios).

Use Exam Length & Company Activities To Guide Your Prep

Now, the second thing I’d recommend doing to prepare for an Excel modeling test is to use both the length of the exam and the activities of the company to help guide your focus leading up to the test.

From a timing perspective, most in-office Excel modeling exams will be somewhere between about 1-4 hours long, with most companies telling you beforehand how long you’ll have to complete the test.

And this information can ultimately give you a lot of insight up-front into what’s likely to be expected of you when you come in to take the test, since the expectations in a 1 hour exam are going to be significantly different than the expectations in a 4 hour exam.

In general, the shorter your test is scheduled to be, the simpler that prompt is usually going to be, and the longer you’ll have to complete an exam, the more complex of an assignment you’re likely to come across.

This tends to be a really good way to get a sense for what you should be preparing for, since a 60-minute exam usually isn’t going to include things like complex waterfall modeling or intricate commercial lease structures, but if you’ll have 3-4 hours or more to finish up a test, these things are much more likely to show up on an exam.

Now, in many cases, companies will intentionally make an exam take longer than the time they provide, just to see how candidates perform under pressure. However, a good general rule of thumb is that the shorter a test is expected to be, the more you’ll want to double down on the basics, and the longer a test is expected to be, the more you’ll need to take some extra time to make sure you feel comfortable with more advanced modeling concepts before heading into the exam.

What Will You Be Doing on the Job?

Once you’ve factored in the timing of the exam, you’ll also want to think about the types of projects you’d be working on if you were to land the job.

For example, if you’re interviewing for an acquisitions analyst role at a company focused specifically on the industrial sector, it’s also very likely that your modeling exam is going to involve the analysis of a potential industrial property acquisition.

Most exams won’t require you to know much (or anything) about the differences in operations between different product types, but residential deals do tend to be modeled slightly differently than commercial deals when it comes to referencing a number of units versus a property’s square footage, and ground-up development models can look very different from models analyzing the acquisition of an existing commercial property. With that in mind, just take some time to think about what your day-to-day activities might look like if you were to be offered the role (or just take a second look at the job description), and keep your prep focused on being able to accomplish those tasks.

Focus on Fundamentals Over Advanced Topics

The last recommendation I want to make here is related to something I mentioned in the last point, and this is to make sure you’ve mastered the fundamentals before diving into more advanced modeling topics.

This means that, if you’re still not clear on how to model things like monthly debt service payments or how to calculate a property’s projected sale value using an exit cap rate assumption, you should not be jumping into modeling things like interest-only periods on loans or complex equity waterfall calculations.

While many companies will include some advanced modeling components on an exam, what employers are really looking for in candidates (especially at the analyst level) is a clear understanding of the fundamentals of real estate finance and financial modeling in Excel, and the ability to apply this understanding from day one on the job.

If you get tripped up on waterfall calculations at the end of a long test, companies are often going to be pretty forgiving in these types of scenarios. However, if you whiff on calculating a property’s going-in DSCR, incorrectly calculate the average cash-on-cash, or you make other very avoidable errors on the basics of commercial real estate finance, this is going to be a much bigger problem when your model is being reviewed.

I’ve even seen some advanced topics being included as extra credit within an exam, where an employer will explicitly state that something like an equity waterfall isn’t even required to be incorporated into a model to finish the test. Even though employers would ideally like to hire entry-level analysts that can model any investment scenario under the sun immediately, in general, the more advanced modeling concepts that can (and likely will) be trained on the job are seen as more of an afterthought within an Excel exam.

Concepts that often fall into this category include things like modeling commercial re-leasing scenarios incorporating renewal probability, building an equity waterfall model with multiple different hurdle rates, or modeling something like a dynamic refinance or a second layer of financing on a deal. And while these things could potentially come up within an exam, if you’re like a lot of people who find out they have a test coming up and only have ~3-7 days to prepare (or less), you’ll want to use the vast majority of your available time to make sure you’ve mastered the fundamentals before getting into the weeds of more advanced modeling topics.

Where To Find Practice Real Estate Financial Modeling Excel Exams

Like I mentioned in the beginning of this video, the best way to prepare for a modeling exam is to practice using sample modeling case studies directly, and if you want access to multiple Excel modeling tests, along with detailed solution videos that walk you step-by-step through how to solve each question in a variety of different cases, make sure to check out our all-in-one membership training platform, Break Into CRE Academy.

A membership to the Academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis. You’ll also get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and the Break Into CRE Analyst Certification Exam, which covers topics like real estate pro forma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm.

As always, thanks so much for reading, and make sure to check out the Break Into CRE YouTube channel for more content that can help you take the next step in your real estate career.