Academic journal article Journal of the International Academy for Case Studies

To Invest or Not to Invest: That Is the Question!

Academic journal article Journal of the International Academy for Case Studies

To Invest or Not to Invest: That Is the Question!

Article excerpt

CASE DESCRIPTION

This case describes a real estate rental startup venture with a twist; renters select their house to rent and then enter into a three-year contract and earn a $100/month credit to buy the house at the end of the contract period. The problem for the characters in the case is whether or not they should enter into this venture and how they should then proceed given their decision. Several factors complicate this business startup decision, including: their lack of business experience, one of the character's prior negative experiences with being a landlord, the need for further information in order to calculate costs (and therein profits), and the need to examine the potential risks associated with the venture. The case has a difficulty level appropriate for junior level or above. The case is designed to be taught in one class period (may vary from fifty to eighty minutes depending upon instructional approach employed, see instructor's note) and is expected to require between two to fours hours of outside preparation by students (again, depending upon instructor's choice of class preparation method).

CASE SYNOPSIS

Derived from observation and field interviews, the case describes how two English professors, Stephen Hodgetts and Richard Davis, are lamenting their losses in the stock market and how these losses have negatively affected their retirement funds. Davis's solution to working past retirement age (or praying for a miracle turnaround market) is to take control of his investment funds by becoming a landlord and developing a rental scheme which caters to lower income households and/or families with bad credit. Hodgetts has a visceral negative reaction to the plan, given his politics and prior experiences as a landlord, but intently listens as Davis describes in detail how a $10,000 investment per home will yield over $20,000 of profit within three years. Hodgetts is incredulous and wonders why more knowledgeable business people have not constructed a similar business. The case ends with both professors quoting from Shakespeare to support their positions. Hodgetts is willing to get involved in the venture if Davis can provide him with some assurances as to predictability of the success of the business venture.

INSTRUCTORS' NOTES

Overview

To quote Vesper (1990, p. 128) "sometimes the idea for a particular venture comes 'out of the blue' in the form of a proposal by someone else who has seen an opportunity and wants to collaborate in exploiting it." This statement aptly describes the situation that our two protagonists find themselves in; both individuals are English professors who have collaborated on books and articles and find that they both have suffered economically from a downturn in the stock market. Both want to take control of their investments and Davis proposes a plan in which they become specialty landlords who cater to families who can are looking to buy starter homes but do not have the down payment and/or credit rating that will allow them to obtain an affordable mortgage.

Several factors complicate this business startup decision, including: the lack of knowledge and business experience of the individuals involved in the business, one of the individual's prior negative experiences with being a landlord, the need for further information in order to calculate costs (and therein profits), and the need to examine potential risks associated with the venture. In this case, students are asked to analyze the proposed venture and to decide whether the offer "is a good deal." Students must also determine what additional information is needed in order to make a viable decision about this business venture, the risks associated with this business, and the legal form of organization the business should take.

Intended Instructional Audience & Placement in Course Instruction

This case was primarily developed for undergraduates taking an Entrepreneurship and/or Small Business Management course, focusing on the areas of business startups and ownership. …

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