Beacon Hill

1038 Words5 Pages
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…show more content…
To do so, he’s investing $55,000 and planning to finish the work within 4 months. First of all, to save up some money Leonard decided to be his own contractor and supervise those who will actually do the job. This plan has many flaws. First, he has a full-time job that would allow him to look after the premises only during his free-time; if so, the irregularity by which Leonard would run the renovation of the house would highly damage the speed at which the job will be completed, rendering his estimate of a ready-to-rent property within 4 months highly unrealistic. Also, Leonard fails to keep into consideration the opportunity cost of the time he will invest in the property; by completing some jobs on his own, Leonard plans on saving money, truth is, he will be spending money for, example, tools. 4. Should Leonard make this investment? No. Assuming Leonard takes over the existing mortgage and has access to the $160,000 lent by the bank, plus his $25,000, he would have $185,000 available to invest, which would cover for the cost of purchasing the property and half the cost of renovating it. Now, if instead Leonard started a new loan and obtained $210,000, estimated a market value of the premises of $265,500, by summing up all the costs to purchase the house and open the loan, he would still be $6,500 short. He expects to make up for that gap, by finishing the renovation of the premises within 4 months, but also planned to be his own contractor while
Open Document