t
os
5 -8 0 4 -1 2 2
REV: SEPTEMBER 12, 2014
rP
TEACHING NOTE
Pinckney Street
yo
Synopsis
Edward Lee, a recent college graduate with a full-time job and $240,000 in savings, would like to
begin investing in real estate on a part-time basis. His goal is to gain experience in the real estate
field, and build an equity base for future real estate investments. He focuses his search on small
income-producing residential properties in Beacon Hill, which he considers the best residential
op
section of downtown Boston. He proposes to buy a run-down property with maximum leverage for
his equity and then use his amateur construction experience to supervise the rehabilitation himself.
Increasing his returns at a low cost is his objective.
Objectives
tC
Pinckney Street is designed to encourage students with little or no background in real estate to
think through the issues involved in finding and acquiring a small income-producing property. This
case provides a good opening to a real estate course because it makes clear that real estate is more
than location-location-location. While stepping off the stands and entering the field is relatively easy,
real estate is a contact sport with complicated rules and rather high stakes. Is it appropriate for Lee to
approach real estate as a sideline business? This case exposes students to the elements of the real
estate conceptual framework, which are common to all real estate decisions: projects, players,
No
panorama and process.
Do
, 804-122 Teaching Note—Pinckney Street
t
os
Discussion questions to be distributed to students:
How did Lee search for his property?
How would you evaluate the Pinckney Street property? What are the risks and rewards?
rP
How would you evaluate Lee’s search for a mortgage?
What do the numbers look like? Should Lee make this investment?
Analysis
The class discussion of this case can be divided into five segments: (1) a review of Edward Lee’s
yo
goals and assets; (2) a look at Lee’s search process; (3) an evaluation of the Pinckney Street property
with respect to risks and rewards, financials, and renovation issues; (4) a determination of the
appropriateness of this particular property for Lee’s personal needs.
Since this case forms the basis for future student efforts to evaluate investments, it is critical at this
early stage to explore fully both the qualitative and quantitative aspects of the proposed purchase.
Since the students will probably identify closely with the protagonist on the basis of his age,
experience, and resources, it is very worthwhile to devote class time to discussing Edward Lee and
op
his approach.
Class discussion is best led through provocative questions. The instructor may start with a
question such as: Why is Lee going through all this? Lee is the classic aggressive but inexperienced
young entrepreneur. This questioning of his goals should provide a series of responses that the
discussion leader can quickly list on a side board. Lee seeks experience, contacts, and the rapid
growth of a small amount of saved capital, which he hopes will enable him to make larger
tC
investments in the future. He wants to leverage his $240,000 through a substantial commitment of
spare time, energy, and amateur carpentry work. He also wants to own his own apartment. It
appears that his personal background, as well as his assessment of the economics of the area,
influences him to search in Beacon Hill, considered one of the best residential sections in Boston.
How did Lee search for the property?
No
Do you agree with his approach? The goal of this question is to show how logical and methodical
the search for an investment property should be. Lee exhibits a great deal of imagination and
resourcefulness in figuring out what information he needs and how to obtain it: U.S. Census data,
local maps, internet sites and searches, Boston newspapers, industry advertisements, personal
contacts with brokers, and lots of legwork to inspect buildings and interview tenants. Lee’s methods
expose him to the importance of personal relationships in the real estate business, especially as it
relates to how brokers manage their business of bringing together willing sellers and able buyers.
What potential conflicts occur when the brokers are also in the market to acquire buildings
themselves? Lee quickly finds that his savings fail to qualify him as a hot prospect. However, his
Do
persistence and persuasiveness may have finally paid off when a local broker calls him about the
Pinckney Street property.
Lee experiences greater difficulty in validating some of the information he receives. As a recent
college graduate with a full time job at a hitech firm, he does a creditable job of separating the fact
from the fiction on the operating statements he reviews, but he lacks the experience required to make
a mature investment decision that considers all relevant factors. His youthful enthusiasm and the
2
os
5 -8 0 4 -1 2 2
REV: SEPTEMBER 12, 2014
rP
TEACHING NOTE
Pinckney Street
yo
Synopsis
Edward Lee, a recent college graduate with a full-time job and $240,000 in savings, would like to
begin investing in real estate on a part-time basis. His goal is to gain experience in the real estate
field, and build an equity base for future real estate investments. He focuses his search on small
income-producing residential properties in Beacon Hill, which he considers the best residential
op
section of downtown Boston. He proposes to buy a run-down property with maximum leverage for
his equity and then use his amateur construction experience to supervise the rehabilitation himself.
Increasing his returns at a low cost is his objective.
Objectives
tC
Pinckney Street is designed to encourage students with little or no background in real estate to
think through the issues involved in finding and acquiring a small income-producing property. This
case provides a good opening to a real estate course because it makes clear that real estate is more
than location-location-location. While stepping off the stands and entering the field is relatively easy,
real estate is a contact sport with complicated rules and rather high stakes. Is it appropriate for Lee to
approach real estate as a sideline business? This case exposes students to the elements of the real
estate conceptual framework, which are common to all real estate decisions: projects, players,
No
panorama and process.
Do
, 804-122 Teaching Note—Pinckney Street
t
os
Discussion questions to be distributed to students:
How did Lee search for his property?
How would you evaluate the Pinckney Street property? What are the risks and rewards?
rP
How would you evaluate Lee’s search for a mortgage?
What do the numbers look like? Should Lee make this investment?
Analysis
The class discussion of this case can be divided into five segments: (1) a review of Edward Lee’s
yo
goals and assets; (2) a look at Lee’s search process; (3) an evaluation of the Pinckney Street property
with respect to risks and rewards, financials, and renovation issues; (4) a determination of the
appropriateness of this particular property for Lee’s personal needs.
Since this case forms the basis for future student efforts to evaluate investments, it is critical at this
early stage to explore fully both the qualitative and quantitative aspects of the proposed purchase.
Since the students will probably identify closely with the protagonist on the basis of his age,
experience, and resources, it is very worthwhile to devote class time to discussing Edward Lee and
op
his approach.
Class discussion is best led through provocative questions. The instructor may start with a
question such as: Why is Lee going through all this? Lee is the classic aggressive but inexperienced
young entrepreneur. This questioning of his goals should provide a series of responses that the
discussion leader can quickly list on a side board. Lee seeks experience, contacts, and the rapid
growth of a small amount of saved capital, which he hopes will enable him to make larger
tC
investments in the future. He wants to leverage his $240,000 through a substantial commitment of
spare time, energy, and amateur carpentry work. He also wants to own his own apartment. It
appears that his personal background, as well as his assessment of the economics of the area,
influences him to search in Beacon Hill, considered one of the best residential sections in Boston.
How did Lee search for the property?
No
Do you agree with his approach? The goal of this question is to show how logical and methodical
the search for an investment property should be. Lee exhibits a great deal of imagination and
resourcefulness in figuring out what information he needs and how to obtain it: U.S. Census data,
local maps, internet sites and searches, Boston newspapers, industry advertisements, personal
contacts with brokers, and lots of legwork to inspect buildings and interview tenants. Lee’s methods
expose him to the importance of personal relationships in the real estate business, especially as it
relates to how brokers manage their business of bringing together willing sellers and able buyers.
What potential conflicts occur when the brokers are also in the market to acquire buildings
themselves? Lee quickly finds that his savings fail to qualify him as a hot prospect. However, his
Do
persistence and persuasiveness may have finally paid off when a local broker calls him about the
Pinckney Street property.
Lee experiences greater difficulty in validating some of the information he receives. As a recent
college graduate with a full time job at a hitech firm, he does a creditable job of separating the fact
from the fiction on the operating statements he reviews, but he lacks the experience required to make
a mature investment decision that considers all relevant factors. His youthful enthusiasm and the
2
