Commercial Real Estate & Investment

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 will be looking to secure a mortgage to facilitate the purchase of the property. All variables must be assessed and measured to provide Mr. Alexander with a recommendation to purchase said property and make any adjustments to the structure of the deal or to pass on deal all together. Our client also desires to live in the apartment building, and this must be taken into consideration both from a fundamental perspective as well as financial one.

Strengths

Mr. Alexander is an accomplished carpenter and can make many of the improvements to the subject property himself. In addition to the carpentry skills, Mr. Alexander wants to manage the property himself. This will allow him to increase his monthly cash flow as he will not have to hire a property manager.

Recently the subject property was classified as being part of a historical district in which the area will not see any more buildings constructed. This provides safety from over saturation within the market. Buildings are not permitted to have improvements made to the exterior as well, without proper approval from the council. This ensures that direct competitors will not be making face-lifts to their properties and thus making the subject property less desirable.

The subject property was left in a perfect position to make improvements to create immediate equity. 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/