Leonard, a college graduate, came upon an inherited equity and became interested in real estate. He decided to invest in a 4-unit property at Anderson Street on Beacon Hill which will serve both as a residence and an investment. Although the said property was within the price range of what Leonard is looking for, the property needed some renovations. Thus, Leonard was faced with the problem of whether it is worth investing in this property and how to avail of a loan for the renovations he has to make.
William J. Poorvu, Leslie M. Feder
Harvard Business Review (386036-PDF-ENG)
August 13, 1985
Case questions answered:
- How did Leonard go about searching for his property? How would this search be different today?
- How did Leonard go about evaluating and buying the property Anderson Street?
- Which people helped Leonard in the process and what functions did they perform?
- What are the problems relating to the rehabilitation work proposed?
- Should Leonard make this investment? (This should include a valuation of the property or valuation of the equity)
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Case answers for Anderson Street
This case solution includes an Excel file with calculations.
Identification of Central Problem & Ancillary Problems
Leonard had become interested in the field of real estate and he wanted to gain some experience in real estate investment. He had received $ 25,000 inherited equity from one of his aunts. He had started his search for a valuable property from which he can generate significant rental income. He began his search for the property in the Beacon Hill area, which had many advantages such as it was close to most of the urban amenities.
He began his search through newspapers and by visiting those offices which did high advertising in the newspapers. As time moved on, he became more interested to invest in a building in the Beacon Hill area because of the location and the natural advantages of the area. It was in August of 1987 that he came to know about a 4-unit house at Anderson Street on Beacon Hill through one of his brokers.
This property was within the desired price range of Leonard and it required some renovations before it could become operational. The previous owner had completed most of the part of the building renovation, however, some renovations were still needed. Their previous owner had placed up the property for sale because he did not have the funds to complete the remaining renovation of the building. Therefore, the central problem faced by Leonard now was whether he should invest in this property with an asking price of $ 168,000.
The ancillary problems related to the property investment included the selection of the loan, which provided the funding for the rehabilitation of the building. This is because the proposed rehabilitation work was becoming an important issue for Leonard due to the shortage of funds. Leonard was naïve in the field of real estate investment and he alone had to arrange for the financing of the property renovation. Therefore, the solution to all of these problems must be visible before a decision is made to invest in this 4-unit property.
Case Analysis – Anderson Street
We begin the analysis of the case by analyzing the problem in more detail.
Analysis of the Problem
We will analyze the problem by defining the internal and external factors affecting the problem and then perform a brief SWOT analysis.
Internal & External Factors Influencing Problem
There are a number of internal and external factors, which would influence the central as well as the ancillary problems faced by Leonard. From the internal side, Leonard was…