The Fermi Problem

THE FERMI PROBLEM
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The Fermi Problem
Understanding the importance of quantitative reasoning and analysis in decision making is important for any business manager. It allows him to be able to find the best strategy to increase both the efficiency and quality of his investments. In this report, a client proposal is provided with regards to how he can diversify his real estate portfolio.
The Case
The case provides that the client has at least thirty residential properties located in around 4 different cities in Australia. These properties are near high traffic and populous locations such as the Bundoora Campus. Additionally, the client wanted properties that would be readily available for the students, with a preference over houses that has at least two bathrooms and four bedrooms. In terms of his investment, the client wants to maximize his returns by increasing the occupancy and efficiency of his houses. Thus, he is choosing between having his properties managed under a traditional and licensed agent, AirBnb, or a combination of both of these management strategies. Finally, the client wants a revenue projection for a period of one year.
Market Research and Analysis
Striking a balance between these two management systems requires careful knowledge about the different circumstances regarding the properties and these methods of management. On the one hand, recent estimates show that these residential properties are stable and less volatile as compared to stocks or other investments in the market. In fact, one study conducted in 2018 shows that the country has one of the most stable housing markets in the world given that it was able to avoid “recession for more than 25 years and seen very strong price growth in most property classes” CITATION Aus18 \l 13321 (Burke, 2018). In terms of the cities where the residential properties are located, it seems that despite the downturns brought about by the COVID-19 pandemic, property gains are still higher compared this year as compared to the previous year by around 5.9% CITATION Law20 \l 13321 (Lawless, 2020). Additionally, it must be noted that the city of Melbourne has the second least affordable market when it comes to rental prices and that this trend seems to have consistently increased over the past few years CITATION The202 \l 13321 (The Indian Telegraph, 2020).
Using databases in the internet, it is possible to estimate property prices in different suburbs around the city of Melbourne, Australia. First, Kingsbury properties are estimated at around $710,000 for a three-bedroom unit, which means that a four-bedroom unit could be priced at $946,666. Second, housing properties in Preston are valued under $1,010,000 for the same 4-bedroom unit. Third, properties located in Bundoora are around $740,500 CITATION Rea20 \l 13321 (RealEstate.com.au, 2020). Finally, West Heidelberg are valued at $681,000. This means that among the four locations of the client’s residential properties, those in Preston have the highest values whereas the ones in the Heidelberg West have the lowest prices CITATION Rea20 \l 13321 (RealEstate.com.au, 2020). A table summarizing these property values is provided below.
LINK Excel.Sheet.12 "Book1" "Sheet1!R3C3:R7C4" \a \f 5 \h \* MERGEFORMAT
Suburb

Price

Kingsbury

$ 946,666.00

Preston

$ 1,010,000.00

Bundoora

$ 740,500.00

Heidelberg West

$ 681,000.00

Table SEQ Table \* ARABIC 1 - Prices are based from data provided by RealEstate.Com.AU
Since all of the residential lots are close to the university, both the value of the property and the demand for occupancy will increase. Based on recent estimates, it seems ...