Investment Memorandum Revere Street Case Study Analysis
Risks:
The major risks involved in the investment project includes lack of funds required to complete the project as the total investment required for the projects is estimated to be $547,000 which includes all the expenses mentioned in financial analysis section above. Furthermore, the cash from his $450,000 mortgage plus his $80,000 equity would still leave him $19,000 short.
Moreover, since the property was damaged by fire, the investment appears to be risky as fire-damaged properties are exposed to the risk of fire and are considered to be less attractive by citizens. Additionally, Edward wants to be his own contractor to save money. However this can might be difficultas Edward has a full time job. This can cause delays in the construction and renovation of the building.
Furthermore, Edward lacks experience within this arena i.e. real estate business, he lacks the knowledge about the permission requirements of building and renovating properties. This will affect the timings of the repairs and construction of the property as Edward might take significant time to get familiar with the legal requirements associated with the real estate business and renovation of historical buildings.
One major issue facing our client is the lack of experience within this arena. While he does possess the ability to make improvements to the property, he lacks the knowledge of city building permit requirements. The time required to become familiar with these statutes could greatly affect the timing of the repairs.
Macro Analysis/ Comparable:
In order to assess the financial feasibility of the project, the rent, costs and equity portion of similar two bedroom apartments in the same area is used and gathered from therealtor.com and the zilliow.com. Based on these comparable, it is concluded that Edward can achieve greater profits from investment in the building by changing the management fee, the repair fee and construction cost. (Zillow, 2020) However, it is evaluated that Edward will not be able to increase room rents as the room rates are most likely to range from $1600-$2000 which are currently offered by the property. (Realtor.com, 2020).
Appendix 2- Financial Evaluation Based on Scenarios
| Categories | Current Financial estimates Used | Best Case Scenario | Worst Case Scenario | Most Likely |
| One Bedroom Rent | $2000 | $2300 | $1700 | $2000 |
| Two Bedroom Rent | $1700 | $1800 | $1450 | $1600 |
| Vacancy | 5% | 5% | 8% | 10% |
| Construction Cost | $165000 | $150000 | $210000 | $165000 |
| Repairs | 5% | 5% | 12% | 8% |
| Management | - | 5% | 9% | 7% |
| Equity Participation | $80,000 | $60,000 | $80,000 | $70,000 |
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