Revere Street Case Study Essay

1116 Words Feb 19th, 2014 5 Pages
February 12, 2014
Commercial Real Estate & Investment

Revere Street

Background/ Purpose
Mr. Alexander is a gentleman that is looking to build his investment portfolio through residential real estate. He is looking at investing in a 4-plex in a historical district located within Boston, Massachusetts. The building is located on Revere Street and has a listing price of $350,000. Mr. Alexander is evaluating the possible commitment to understand what he stands to gain from the annual cash flows while at the same time understanding the risks involved. The subject property is located within a historical district and is not yet capable of housing tenants. Property will require significant improvements prior to inhabitation. Client
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The current owner ran out of capital to make the necessary improvements, but left a shell that can be remodeled to Mr. Alexander’s specifications. Our client met with a contractor, who confirmed that it would cost approximately $165,000 to complete the original plans.

The current assessed value of the property is stated at $400,000, however with the improvements to be made by the current owner, there is a projected value of $500,000. However, with Mr. Alexander making the improvements to the property himself, along with the average rents in the area increasing, the value is now projected to be worth $562,500 a 12.5% increase.

Issues/ Weaknesses
Mr. Alexander is new to the property management arena and has no experience with multi-family dwellings. Due to our clients limited capital he cannot afford to hire a property manager. Because Mr. Alexander will also be working his normal full-time job, and doing the property management as a ‘side-job’ the ability to manage multiple subcontractors will be highly inefficient and could lead to disgruntled tenants and higher vacancy rates.

Also, the client will be extinguishing his savings with the purchase of this property and would not have the funds necessary to facilitate a major fix to the building, given that occurrence (ie., roof, HVAC, etc.). A reserve of 5% of the buildings value is the industry standard.

Opportunities

This specific property provides our customer with an affordable beginner
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