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Beacon Hill

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Beacon Hill – Study Case
Beacon Street

1. How did Leonard go about searching for and evaluating property?
Just like any investor, Leonard is taking into considerations many different aspects: demographics, amenities, rent averages and county regulation. Considered that Leonard is looking for a long-term source of income, he is looking at properties with an expected low depreciation, a maximized capital appreciation and an increasing market value in the foreseeable future. Given his $25,000 and an expected return on the investment of 8%, Leonard realized he would have to look for properties in the back slope of Beacon Hill, where real estate had a great potential market growth. In order to meet all his expectations and at the same time remain within his budget, Leonard also realized he needed a property that would require considerable renovation.
When choosing whether or not to bid on the 4-unit apartment house he found on Beacon Hill, Leonard ran some numbers.
Assuming a market value of $175,000, which is the bank’s estimate following the fire that damaged the real estate, Leonard would qualify for a loan of $160,000; renovating the building would cost $55,000 which brings expensive up to $223,000, while the amount of funds available to Leonard are $185,000.
Since mortgage regulation imposes a financing not higher than 80% of the total market value of the premises, Leonard must improve the property’s value so that renovating and set up costs can be covered by the mortgage. Assuming renovation is complete and the building is turn into 3 two-bedroom apartments and one one-bedroom apartment, with a rent of respectively $990 and $880, the market value of a real estate located in the Boston Beacon Hill neighborhood should approximately reach $250,000. The mortgage would then increase to $200,000, which if summed up to the $25,000, would bring Leonard’s funds

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