Course Discussion Questions

Discussion Questions 20
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Answer the questions that are listed using the information written in the passage above the question as well as referencing the pickney st case.
Prompt 1
Edward Lee requires a cash flow-producing property, and choosing the right location was essential as the area affects the current and potential property value. Furthermore, housing rules and regulations affect investors’ willingness to invest in real property in certain areas more than others. Lee is already familiar with the Beacon Hill area. However, he needs to find more information that will inform his decisions about the property market there and surrounding areas.
1 Question:  As a first-time real estate investor, should Lee be looking to maximize his profits in a riskier, high-growth area (i.e. the early 2000's Las Vegas housing boom) in order to quickly grow his personal balance sheet, or should Lee be conservative by investing in slower growth, but safer, areas like Beacon Hill? 
The question of whether Lee needs to consider a riskier, high-growth area or conservative slower growth depends on his appropriate for risk and whether he has the patience to wait for returns in the short-term or long-term. Thus, Lee needs first to get information about the different property markets. There are different factors affecting property markets, and rankings on growth potential indicate that the investment is likely safe.
2 Once we have determined an area we believe will have a high occupancy, what types of properties (single-family, duplex, apartments) should a new investor begin with to gain firsthand experience with investing? 
Lee already knows about the Beacon Hill neighborhood. However, he needs to get familiar with the demand for property in the area and what the people prefer. For instance, some properties are more likely to have better than average long-term asset appreciation in the neighborhood. There is heterogeneity in the real estate market and getting local knowledge of the community is necessary to make decisions o the type of property he should choose. Both the demand for different real properties and return on investment are priorities in decision-making.
3 Question: What is other important information that Edward may have missed in his research and how could these help him better assess an investment opportunity in Beacon Hill?
Location and the demographics of the area have a direct impact on the property value. Physical characteristics of the property and the surrounding areas, including social amenities and infrastructure, ought to be considered. Wealthy neighborhoods tend to have more amenities, and investors are more willing to bring businesses closer to the people. There are higher rates of property delinquency in poor areas and when the unemployment rate is rising.
4 Question? We learned about how neighborhoods change over time. Between Real Usage Value & Time – Where do you see Beacon Hill in the property cycle and please explain why?
Bonnie Wall
Land and real estate are mostly appreciating assets, and location affects how people build their net worth. However, Lee first needs to get financing. In areas where the values are rising, there is likely to be an increase in people’s net worth, which will attract more people with money. Home equity is one of the main sources of an individual’s net worth in the US, and the value of the property will increase faster based on demand for housing.  
5 Question: What benefits and drawbacks can you see in investing in a high value area vs. a more up and coming area?
High-value areas are generally stable, and there is potential for profit. However, Lee also needs to consult his wife to evaluate whether it is worthwhile to invest in the area, considering that he is already familiar with the place. Up and coming areas have a high potential for growth based on whom they attract. However, they tend to have fewer amenities and infrastructure than the high-value area.
Prompt 2
1 Question:  What are some compromises Lee can make with his wife, and reasons to back them up, in order to get her more comfortable with living in the building they own and Lee manages? 
Living in the same building they are managing is one way to cut costs, and they are better placed to monitor changes in the property market. Lee will also learn from the first-hand experience living and managing the building. However, it is likely that Lee’s wife prefers a different type of property and sees their real estate holding as merely an investment. Tastes and preferences do influence the demand for housing, and Lee needs to consider how this fits in with his family.
2 Question: What are the considerations in case Edward wants to explore his lawyer’s idea of converting the units into condominiums?
Converting the property into condominiums needs to be considered as there are costs that may be incurred, including legal costs. Lee also needs to consider the legal documentation and zoning laws required since there are different zoning laws and requirements. Another issue is that it is better for landlords not to mix with the tenants and maintain independence.
3.Question: What mechanisms/methods do you think a landlord can use to control both the professional property manager and the tenants so that the manager does his job well and the tenants behave properly? 
Edward lacks real-estate experience, and he needs to get more information on property management as this will help him manage the property more efficiently. His wife’s concerns cannot be ignored as Lee mostly needs a business relationship with the tenants. Lee may also find it challenging to ask for money for maintenance and repairs if he does not document everything.
3 Question:  In lieu of Edward and his wife living “rent free” in their own property, would it be wiser to instead rent out that apartment unit they intend to live in and use the rental income from that unit to rent a comparable rental apartment nearby where they can live and still manage their property from afar?    
For the Lee family living “rent free” will make it easier to manage their property expenses, but they also need to evaluate the costs and benefits of renting out. If they get more rental income than they spend on rent, then re...