Real Estate Analyst Interview Preparation Guide Download PDF
Real Estate Analyst based Frequently Asked Questions in various Real Estate Analyst job interviews by interviewer. These professional questions are here to ensures that you offer a perfect answers posed to you. So get preparation for your new job hunting
34 Real Estate Analyst Questions and Answers:
1 :: Tell me what is the difference between rental yield and cap rate?
Rental yield is the net amount of money a landlord receives in rent over one year (after deducting operating expenses), shown as a percentage of the amount of money invested in the property.
So, Rental Yield = (Net Annual Rental Income / Cost) X 100
Note that rental yield is calculated on Net Operating Income without considering interest payment, tax and depreciation.
Cap rate (or capitalization rate) is the ratio between the net operating income produced by a real estate asset and its cost (or current market value).
So, Cap Rate = Net Operating Income / Value (or cost)
If you notice, both rental yield and cap rate appears to be same!
Rental yield is used to calculate the yield (return) of an asset whereas the cap rate is used to find the value (capitalized value) of an income generating real estate asset.
So, Rental Yield = (Net Annual Rental Income / Cost) X 100
Note that rental yield is calculated on Net Operating Income without considering interest payment, tax and depreciation.
Cap rate (or capitalization rate) is the ratio between the net operating income produced by a real estate asset and its cost (or current market value).
So, Cap Rate = Net Operating Income / Value (or cost)
If you notice, both rental yield and cap rate appears to be same!
Rental yield is used to calculate the yield (return) of an asset whereas the cap rate is used to find the value (capitalized value) of an income generating real estate asset.
2 :: How to calculate the cost of equity?
Cost of equity is the return a firm theoretically pays to its equity investors. Capital Asset Pricing Model (CAPM) is the most commonly used method of determining the appropriate cost of equity. According to CAPM:
Cost of Equity, Re = Rf + b (Rm-Rf), where;
Re = Cost of Equity
Rf = Risk-free rate of return
Rm = The historical return of the stock market / equity market
b = is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to.
Cost of Equity, Re = Rf + b (Rm-Rf), where;
Re = Cost of Equity
Rf = Risk-free rate of return
Rm = The historical return of the stock market / equity market
b = is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to.
3 :: Explain me through how you analyzed the last project you worked on?
As I pointed in the previous post, this question may lead to many others and it gives you an opportunity to tell your story.
I think you should think about the projects you have worked on and chose the most challenging one. Write a short note before interview, covering the followings:
☛ Project description – location and size
☛ In what capacity you were involved in the project? Define your role and responsibility clearly
☛ Reporting structure
☛ Biggest challenge you faced on this project
☛ How you solved that challenge?
☛ What is the current status of the project?
It will be a good idea to write this one day prior to the interview so that you are clear in your mind, and can answer the questions with confidence.
I think you should think about the projects you have worked on and chose the most challenging one. Write a short note before interview, covering the followings:
☛ Project description – location and size
☛ In what capacity you were involved in the project? Define your role and responsibility clearly
☛ Reporting structure
☛ Biggest challenge you faced on this project
☛ How you solved that challenge?
☛ What is the current status of the project?
It will be a good idea to write this one day prior to the interview so that you are clear in your mind, and can answer the questions with confidence.
4 :: Tell me why Real Estate?
Probably the most important question you will get. You NEED to come off as passionate. Employers do not want someone who “thinks” they want to go into real estate. It is a specific industry and the players are passionate so you should be too. And if you aren’t then you should probably stop reading this blog. The key is to easily tell a story about your interest in real estate. Instead of saying the classic “real estate is tangible” line, try something different. Personally, I like the fact that when you go out and meet someone, perhaps the first thing that comes up is where they live on campus. And what most certainly always follows is “what do you pay in rent?” Real Estate is an asset class that is unique in this respect. You don’t walk up to someone and say “Hey how much money do you have in variable annuities?” Real Estate unlike traditional Finance is discussed in real life!
5 :: Explain what is levered IRR?
A levered IRR is just the Internal Rate of Return when you take financing into account. So basically you run a DCF, take out interest payments and calculate the IRR over the hold period. This will be higher mainly because taking on debt juices your returns and more specifically the first year cash flow will be lower because you have debt.
6 :: Tell me what do you look for in a possible real estate investment?
This totally depends but you might want to go with something that creates value and provides above average returns to investors. Maybe you purchase it at a discount to replacement cost, lease it up, stabilize the asset, and then sell it.
7 :: What is a promote?
It is really just the disproportionate share of the fund’s profit (achieved by above average returns) which the GP receives thus incentivizing them to perform better in their role.
8 :: Tell me what is your favorite Excel formula?
There are many formulas you could mention to show your knowledge but the one’s that the interviewer is looking for are VLOOKUP, CONCATENATE, IF, SUMIF, and MATCH. If you mention any one of these it will separate you from the rest of your fellow undergraduates.
9 :: Suppose if a project has zero NPV and the discount rate is 10%; what will be the project IRR?
By definition IRR is the discount rate at which the project NPV equals zero. Hence the project IRR will be 10%.
10 :: Tell me in calculating project IRR should we consider financing cash flow?
No, project IRR doesn’t take into consideration the financing cash flows. Equity IRR does.