21 Unit in Fallbrook Ca

5 Replies

Hello everyone, I am currently writing my first commercial offer in Fallbrook Ca on a 21 unit apartment, asking price is 2.8 million. How long is the typical due diligence on a property like this?

Hi Aaron,

This is Swanny in Mira Mesa. California is way too expensive per unit. In my latest deal I am getting 34 units at $33,824.00 a unit. The market rents are $695.00-$720.00 for a 2br and the 1br rents for $595-$620.00. I sold all my rental condos in Santee and Lakeside and 1031 exchanged them for apartment complexes out of state.

Swanny

Aaron,

I think I know which building you are looking at.  Are you representing a buyer as a RE or are you buying it for yourself?  If it' s for you, I'd listen to Swanny here. The numbers dont make any sense compared to what you can find in the midwest or south. 

So @Aaron Getter here’s my due diligence (hint: I’m with @Scott R. and @Michael Swan )...

$2.8M asking price
25% down, 5% rate, 25 year amortization
$12,276 per month debt service
$147K per year

Stated NOI is: $95K
Usually stated NOI is overly generous (in my experience) but if it’s accurate you’ll lose $52K per year.

Difference between gross operating income and Gross scheduled income is $12K. So if expenses are flat (which they won’t be) you “only lose $40K per year”.

It’s been on the market over 12 months. Which means they’ve had a chance to raise the rent on 100% of the units.

To VERY OPTIMISTICALLY break-even you need to knock $575K off of the asking price. And that’s not counting lender fees, origination costs, appraisal fees, and a few other “small money” categories.

By the way, I could be wrong 🤷🏻‍♂️ This is literally diligence done on my iPhone.

But there are only so many $2.8M apartment complexes in Fallbrook with 21 units.

@Aaron Getter - I won't speak to whether or not this is a good deal, or if you're criteria lines up to that of others.  In terms of due diligence...

I would negotiate 20-30 days for Due Diligence, 30-60 days for closing. This in large part will be dependent on advice from your mortgage company/broker. A finance contingency, and Earnest Money Down non-refundable after DD is completed are typical. In a Southern Californian market you might need to have some EMD non-refundable ("goes hard") before the end of the DD period.

"How long is the typical due diligence" -- I would ask yourself how well do you know the market, submarket, street block?  How well do you know the asset and the seller?  You'll want to validate your assumptions and firm up some of your numbers before you are on the "official" due diligence clock. 

Nice back of the napkin math @Andrew Johnson That really tells you everything you need to know. Also, the GRM seems high for the area just by looking at a few local comps.

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