ase Study

Executive Summary

Problem Statement

Edward Alexander a Harvard graduate is looking to invest in a small income producing apartment building in the Back Bay-Beacon Hill area of Boston, Mass. He currently has $80,000 dollars saved up to purchase this property. He began his search for the perfect property checking current listings and prices using, www.bankrate.com and www.realestate.boston.com. Due to many of his friends living in the area he gained access to eNeighborhoods a program that allowed him to enter addresses and it would show the previous 25 properties sold. Most properties observed sold for $700,000 and higher and required an initial equity investment of $150,000. Since he only has $80,000 in equity he plans to take out a mortgage to cover this cost. He found that the listings he came across were rundown and in bad condition. Such as one property on Myrtle St. This property showed a 20% return on cash investment, but did not account for repairs, vacancies, or management expenses. With these included the cash return would be only 3%. The values of many buildings on Beacon Hill had doubled or tripled in the past ten years due to a large amount of wealthy professionals anxious to own real estate. Alexander therefore believed that an apartment building in the Beacon Hill area would be a safe investment due to little chance of depreciation for functional or economic causes.

After many failed attempts to find a suitable property Alexander learned of a 4-unit apartment house located on the “back slope” of Beacon Hill. While prices in some neighborhoods had declined prices on the “back slope” continued to increase. The property was only partially developed with three 2- bedroom apartments and one 1- bedroom apartment. The asking price was $350,000 and it would cost approximately $165,000 to complete the renovations. He is planning to