Your ability to take in massive amounts of data, process it, and develop a cogent business plan is essential to building a successful real estate career. Enhanced competition in a world of abundant information requires you to step up your analytical game. You’ll be able to receive and act on critical data faster than your peers when you strengthen your analytical skills.
Analytical skills are comprised of three discrete elements – input, processing, and output. Your ability to learn, understand, and assemble new opportunities is directly related to optimizing each of these elements. This simple foundation will help take your analytical skills to a new level.
Why It Matters
Analytical skills are important for collecting information and connecting the dots between seemingly unrelated concepts.
A variety of data points in your direct view and periphery may or may not influence the outcome of your investment. Data related to supply, demand, and other market dynamics could materially impact the profitability of your investment. Your ability to process this information and communicate potential risks and opportunities is critical to long-term success in the field.
Many people resist anything that refers to “analytics” because it too closely resembles middle school algebra. Further, creatives often think that analytical skills run counter to or somehow hinder their creativity. However, creativity is at the core of being able to approach a problem and critically compose solutions.
A rough business plan starts when you first approach a deal. You think about what exists and what could be. This is the most rudimentary analysis.
Expanded business plans use data points from financial models, market research, property investigations, and many more sources. Each additional data point helps to outline the problem, define a desired end-state, and propose a strategy to get there.
Gathering and processing each data point takes time, and time can be friend or foe in making a deal. Real estate deal making is a numbers game, and your analytical proficiency directly relates to productivity. Strengthen your analytical skills to review and close more deals.
The analytical process breaks easily into three phases, like in a computer. They occur sequentially for each piece of a deal, but they may get jumbled when there are multiple sub-parts. That said, the process starts with awareness, proceeds to conceptualization, and finishes with transferring your thoughts to the next step. Simply, these phases are input, processing, and output.
Input – Research & Investigation
Information comes from millions of sources. These may be the hundreds of emails every week pitching new brokered deals. It may also come from inspiration in every interaction with the natural and built environment.
Think about how many times you’ve walked into a building a thought about the potential if they made this one little change. Sometimes, something just clicks, and you decide that there’s a way to make a deal work. That is the result of a quick feedback loop between input and processing. That intuitive “aha” moment is often unexplainable, but you feel it in your gut that “there’s something here.”
Input is a time-consuming process.
Research is the process of turning over rocks, and investigation is the rapid feedback loop that tells you whether to put that rock down or dig further. This process reveals questions that need answers.
In real estate investing, the question is usually, “what do we do with it to make the returns we seek?” This simple question is what drives most investors to move forward on a deal that seems to have potential.
Processing – Critique & Creativity
The mind is a black box.
We know more about the natural world outside ourselves than what lies between our ears. In this way, it’s very similar to the computer you’re using to read this. You have a general idea of how it works, but your understanding is juvenile to those with an electrical engineering doctorate.
The processing phase is where you connect the dots from your input phase. This combines your education, experience, and mental models to come up with a conceptual resolution to the problem or question at hand.
In many cases, your processing abilities are incomplete. This is where the loop between input and processing becomes almost infinite. You find some information and process it just to find out that you need additional information to complete your solution.
Information gathering reaches a point of diminishing returns from additional input. Therefore, knowing when to terminate an infinite loop at “good enough” is sometimes more important than finishing. Focus on this discipline alone will strengthen your analytical skills and improve productivity.
Output – Communication
All the best analysis in the world is worthless without a strong ability to simplify the result in an easily consumed package. A firm understanding of your audience’s skill level, needs, and desires is essential to effective communication. Additionally, the medium often has a material impact on the consumption of your analysis.
Good analysis starts with a clear question, and it finishes with a clear answer that meets the expectations of the questioner.
Your conceptual business plan lays out the opportunity within the existing condition. It proceeds to propose an execution plan and supports all this with relevant data.
Communication may be only 20% of the overall analytical process, but it holds the potential to influence more than 80% of the impact from your work. Therefore, consider all areas of communication – from medium to message and everything in between – to strengthen your analytical skills.
Practice is the foundation of expertise. You can only become great at something through consistent, intentional repetition. Therefore, the easiest way to strengthen your analytical skills is through regularly scheduled practice.
Back to Basics
Financial modeling is a specialized skill that takes a long time to master. It requires a solid understanding of markets and hotel operations in addition to the technical aspects of how to manipulate an Excel spreadsheet. Much of this comes with time and exposure, but the cornerstone is very simply revenue minus expenses equals profit.
A back-of-the-envelope financial analysis is often more powerful for making a buying decision than a complex, integrated Excel workbook. It contains all the years of assumptions, best practices, and failures that come from intuition. Quantitative models cannot capture this, banks and investors need to see more.
Analysis starts with a single dot. You know in your mind and heart whether the deal will work from that point. The mission then becomes how to gather and connect enough dots to convince others of the deal’s feasibility.
Don’t overcomplicate this.
When it feels like you have all you need, remove one data point. Information overload is equally detrimental as insufficient information when making your point. Take an incremental approach to weave together an easy-to-follow story.
Malcolm Gladwell’s 10,000 hour rule is now gospel in many professional development circles. Still, the superficial naming doesn’t fully capture what goes into those hours that makes it valuable.
Beneficial practice incorporates more than simply going through a series of problems, like those in a high school text book. It requires constant immersion. You must unravel a series of connected dots to get to the foundational aspects of understanding.
Everyone has a different approach, and your process to unravel those connected dots is as much an education as finding the dots themselves. Learning to learn is essential to strengthen your analytical skills.
Spend time underwriting every deal that comes across your desk for three months. EVERY DEAL.
Don’t think about whether it fits your investment criteria. Abandon any bias you may have about a market or brand. Ignore the pricing guidance. Open your mind to the possibilities that could exist if you got your hands on the property.
This exercise will expose you to a wide range of operating standards, capital structures, renovation scopes, and brand requirements. Exposure like this takes time and effort, but you will emerge as one of the best real estate analysts in the market – technically and intuitively.
The first three months are your loading phase. Integrate a week-long practice like this every quarter when business seems to be slowing down to sharpen the saw.
Financial modeling and underwriting aren’t the only aspects of deliberate practice to strengthen your analytical skills. It also involves market studies, industry analysis, asset management reviews, and other analytical approaches that improve your understanding of the business. This is a lot to keep up with, and much of it will inevitably fall through the cracks.
Consider the Eisenhower Matrix:
A good bit of your practice will fall in the Important-Not Urgent square. Unfortunately, these items rarely get the attention they deserve in place of the Not Important-Urgent tasks that consume your attention.
Identification is the first step to determine what to schedule and when. Set some quarterly professional development goals to break into monthly, weekly, and daily action items. You can place these within your schedule when the impact will be most effective.
Similarly, schedule time at the end of each day to review your wins and losses. An after action review will help to codify what works, what doesn’t, and tools/techniques to do it better next time around.