Pickney Case Study
How did Lee search for his property? Do you agree with his approach? Explain why.
Lee spent time in the evenings and on weekends and studied the area. He looked into 2010 Census and gathered information about general demographics in the area. He also checked maps to checks nearby distances to amenities in the area and carried out a search online on web portals such as trulia.com, realtor.com etc. He also looked into newspapers for viable brokers. I agree with Lee’s approach as to be a first-time investor there is a lot of information to gather in and learn from it. Lee utilized all the learning resources available to him such as internet, newspapers, local realtors. Also did BOE
How would you evaluate the Pinckney Street property based on qualitative risks and rewards? List the risks and rewards.
After assessing Lee’s situation, our team concludes that the biggest flaw in Lee’s thinking is that he considers the best case scenario as his base case for success. One example is his cash flow expectation from rent. He believes that he can get the highest possible rent from his tenants, when the previous owners of the property had listed lower expected rent income. This optimistic lens sets him up to believe the best case for other aspects of his forecasts, such as financing. Because he believes in his best case cash flows, he believes that he can take on financing from two sources and put down only 16% in the investment. However, if Lee is not able to find tenants, or the quality of his tenants are poor, then he runs the risk of missed rent payments and incurring legal or repair fees. This risk could cause Lee to default on his mortgage payments, especially because the financing option is at the highest end of Lee’s capital limit. Another aspect Lee is optimistic about his is ability to personally manage the property’s repairs, maintenance and renovations. With another