Anderson Street Case Report Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Anderson Street Case Report Case Solution

ANDERSON STREET CASE REPORT

Identification of Central Problem & Ancillary Problems

Leonardo 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 aunt. 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 to those offices, which did high advertising in the newspapers. As time moved on, he became more interested to invest in a building in Beacon Hill area because of the location and the natural advantages of the area. It was in the August of 1987 that he has 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, still some renovations were left. There 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 that 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 the funds. Leonard was nave in the field of real estate investment and he alone had to arrange for the financing of the property renovation. Therefore, all of these problems had to find solutions before a decision was made to invest in this 4-unit property.

Case Analysis

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 a nave in the field of real estate investment and he does not have any detailed knowledge related to the real estate investment. He did not know how to evaluate the mortgage financing and what would be the impact on the mortgage financing on the expected income of the property. Although, the property is located in a natural and beneficial location and it is profitable but these internal factors were important to the final decision.

Along with this, Leonard was also pressurized by the external factors. He required a mortgage financing of $ 210,000. However, the total costs included the asking price, $ 13,500 were required as carrying costs related to the high mortgage for the construction work, $ 55,000 were required for remodeling costs, closing costs of $ 4000 and escrow funds of $ 1000 would also be required. The remodeling costs also included a minimum commission of $ 5,000. Despite, his inherited equity of $ 25,000 he was still short of $ 6500.

The total estimated renovation cost was $ 1,000,000 and renovations of $ 45,000 had been completed by the previous owner. Therefore, the main problem in getting the bank loan financing was that he needed to justify the bank analytically that he would be able to generate enough savings from the operational building and acting as contractor himself, that he would be able to cover the shortage of $ 6500.

Anderson Street Case Report Harvard Case Solution & Analysis

SWOT Analysis.

The strengths, weaknesses, opportunities and threats related to the investment scenario are listed briefly below:

Strengths

Leonard had an inherited equity of $ 25,000 to invest in this property and generate return on his investment.
The location of the 4-unit property at Anderson Street was impressive and it matched the criteria of Leonard.
The market value of many buildings on the Hill had tripled in the last 10 years.
Leonard had several bank loan options such as from local savings bank and the savings bank.
He had developed personal relationships with brokers and his family’s attorney, Josh Bergman resolved a number of issues faced by Leonard............

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Anderson Street Case Report Harvard Case Solution & Analysis